RIO.AX WACC - Weighted Average Cost of Capital

The WACC of Rio Tinto Ltd (RIO.AX) is 10.6%.

The Cost of Equity of Rio Tinto Ltd (RIO.AX) is 11.50%.

The Cost of Debt of Rio Tinto Ltd (RIO.AX) is 4.85%.

	Range	Selected
Cost of equity	10.00% - 13.00%	11.50%
Tax rate	27.40% - 28.50%	27.95%
Cost of debt	4.60% - 5.10%	4.85%
WACC	9.3% - 12.0%	10.6%

WACC

RIO.AX WACC calculation

Category	Low	High

Long-term bond rate	4.0%	4.5%
Equity market risk premium	5.1%	6.1%
Adjusted beta	1.18	1.31

Additional risk adjustments	0.0%	0.5%
Cost of equity	10.00%	13.00%

Tax rate	27.40%	28.50%
Debt/Equity ratio	0.13	0.13
Cost of debt	4.60%	5.10%

After-tax WACC	9.3%	12.0%


Selected WACC	10.6%

RIO.AX's CAPM model and how its cost of Equity is calculated

The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.

This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.

Here’s how we figure out the cost of equity for RIO.AX:

cost_of_equity (11.50%) = risk_free_rate (4.25%) + equity_risk_premium (5.60%) * adjusted_beta (1.18) + risk_adjustments (0.25%)

We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.