The WACC of Royal Mail PLC (RMG.L) is 8.7%.
| Range | Selected | |
| Cost of equity | 11.10% - 17.00% | 14.05% |
| Tax rate | 13.20% - 17.50% | 15.35% |
| Cost of debt | 4.00% - 7.00% | 5.50% |
| WACC | 6.8% - 10.7% | 8.7% |
| Category | Low | High |
| Long-term bond rate | 4.4% | 4.9% |
| Equity market risk premium | 6.4% | 7.4% |
| Adjusted beta | 1.03 | 1.56 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.10% | 17.00% |
| Tax rate | 13.20% | 17.50% |
| Debt/Equity ratio | 1.28 | 1.28 |
| Cost of debt | 4.00% | 7.00% |
| After-tax WACC | 6.8% | 10.7% |
| Selected WACC | 8.7% | |
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 RMG.L:
cost_of_equity (14.05%) = risk_free_rate (4.65%) + equity_risk_premium (6.90%) * adjusted_beta (1.03) + 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.