The WACC of SmileDirectClub Inc (SDC) is 9.0%.
| Range | Selected | |
| Cost of equity | 27.40% - 47.60% | 37.50% |
| Tax rate | 0.40% - 0.50% | 0.45% |
| Cost of debt | 6.80% - 7.00% | 6.90% |
| WACC | 8.2% - 9.9% | 9.0% |
| Category | Low | High |
| Long-term bond rate | 4.2% | 4.7% |
| Equity market risk premium | 5.0% | 6.0% |
| Adjusted beta | 4.64 | 7.08 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 27.40% | 47.60% |
| Tax rate | 0.40% | 0.50% |
| Debt/Equity ratio | 13.1 | 13.1 |
| Cost of debt | 6.80% | 7.00% |
| After-tax WACC | 8.2% | 9.9% |
| Selected WACC | 9.0% | |
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 SDC:
cost_of_equity (37.50%) = risk_free_rate (4.45%) + equity_risk_premium (5.50%) * adjusted_beta (4.64) + 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.