The WACC of Sime Darby Bhd (SIME.KL) is 6.1%.
| Range | Selected | |
| Cost of equity | 7.80% - 11.30% | 9.55% |
| Tax rate | 27.10% - 29.00% | 28.05% |
| Cost of debt | 4.00% - 5.50% | 4.75% |
| WACC | 5.1% - 7.2% | 6.1% |
| Category | Low | High |
| Long-term bond rate | 3.8% | 4.3% |
| Equity market risk premium | 6.9% | 7.8% |
| Adjusted beta | 0.58 | 0.83 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.80% | 11.30% |
| Tax rate | 27.10% | 29.00% |
| Debt/Equity ratio | 1.27 | 1.27 |
| Cost of debt | 4.00% | 5.50% |
| After-tax WACC | 5.1% | 7.2% |
| Selected WACC | 6.1% | |
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 SIME.KL:
cost_of_equity (9.55%) = risk_free_rate (4.05%) + equity_risk_premium (7.35%) * adjusted_beta (0.58) + 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.