The WACC of SM Energy Co (SM) is 5.1%.
| Range | Selected | |
| Cost of equity | 4.30% - 6.40% | 5.35% |
| Tax rate | 20.30% - 20.80% | 20.55% |
| Cost of debt | 4.90% - 5.90% | 5.40% |
| WACC | 4.2% - 6.0% | 5.1% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -0.23 | 0.01 |
| Additional risk adjustments | 1.5% | 2.0% |
| Cost of equity | 4.30% | 6.40% |
| Tax rate | 20.30% | 20.80% |
| Debt/Equity ratio | 0.31 | 0.31 |
| Cost of debt | 4.90% | 5.90% |
| After-tax WACC | 4.2% | 6.0% |
| Selected WACC | 5.1% | |
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 SM:
cost_of_equity (5.35%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-0.23) + risk_adjustments (1.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.