The WACC of Spectrum Global Solutions Inc (SGSI) is 7.1%.
| Range | Selected | |
| Cost of equity | 5.10% - 7.80% | 6.45% |
| Tax rate | -% - 1.70% | 0.85% |
| Cost of debt | 7.00% - 9.90% | 8.45% |
| WACC | 5.8% - 8.5% | 7.1% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 0.35 | 0.6 |
| Additional risk adjustments | 0.5% | 1.0% |
| Cost of equity | 5.10% | 7.80% |
| Tax rate | -% | 1.70% |
| Debt/Equity ratio | 0.54 | 0.54 |
| Cost of debt | 7.00% | 9.90% |
| After-tax WACC | 5.8% | 8.5% |
| Selected WACC | 7.1% | |
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 SGSI:
cost_of_equity (6.45%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (0.35) + risk_adjustments (0.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.