The WACC of South Malaysia Industries Bhd (SMI.KL) is 8.5%.
| Range | Selected | |
| Cost of equity | 8.20% - 11.80% | 10.00% |
| Tax rate | 30.60% - 45.50% | 38.05% |
| Cost of debt | 4.70% - 7.40% | 6.05% |
| WACC | 7.1% - 10.0% | 8.5% |
| Category | Low | High |
| Long-term bond rate | 3.8% | 4.3% |
| Equity market risk premium | 6.9% | 7.8% |
| Adjusted beta | 0.64 | 0.89 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.20% | 11.80% |
| Tax rate | 30.60% | 45.50% |
| Debt/Equity ratio | 0.3 | 0.3 |
| Cost of debt | 4.70% | 7.40% |
| After-tax WACC | 7.1% | 10.0% |
| Selected WACC | 8.5% | |
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 SMI.KL:
cost_of_equity (10.00%) = risk_free_rate (4.05%) + equity_risk_premium (7.35%) * adjusted_beta (0.64) + 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.