The WACC of Sime Darby Bhd (SIME.KL) is 6.3%.
| Range | Selected | |
| Cost of equity | 7.40% - 11.00% | 9.20% |
| Tax rate | 27.10% - 29.00% | 28.05% |
| Cost of debt | 4.00% - 5.50% | 4.75% |
| WACC | 5.2% - 7.5% | 6.3% |
| Category | Low | High |
| Long-term bond rate | 3.8% | 4.3% |
| Equity market risk premium | 6.9% | 7.8% |
| Adjusted beta | 0.53 | 0.79 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.40% | 11.00% |
| Tax rate | 27.10% | 29.00% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 4.00% | 5.50% |
| After-tax WACC | 5.2% | 7.5% |
| Selected WACC | 6.3% | |
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 SIME.KL:
cost_of_equity (9.20%) = risk_free_rate (4.05%) + equity_risk_premium (7.35%) * adjusted_beta (0.53) + 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.