The WACC of SouthGobi Resources Ltd (SGQ.TO) is 5.3%.
| Range | Selected | |
| Cost of equity | 10.80% - 34.50% | 22.65% |
| Tax rate | 21.60% - 30.20% | 25.90% |
| Cost of debt | 4.00% - 4.50% | 4.25% |
| WACC | 4.0% - 6.6% | 5.3% |
| Category | Low | High |
| Long-term bond rate | 3.6% | 4.1% |
| Equity market risk premium | 5.5% | 6.5% |
| Adjusted beta | 1.31 | 4.6 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.80% | 34.50% |
| Tax rate | 21.60% | 30.20% |
| Debt/Equity ratio | 8.04 | 8.04 |
| Cost of debt | 4.00% | 4.50% |
| After-tax WACC | 4.0% | 6.6% |
| Selected WACC | 5.3% | |
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 SGQ.TO:
cost_of_equity (22.65%) = risk_free_rate (3.85%) + equity_risk_premium (6.00%) * adjusted_beta (1.31) + 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.