The WACC of Sotherly Hotels Inc (SOHO) is 10.9%.
| Range | Selected | |
| Cost of equity | 20.80% - 35.20% | 28.00% |
| Tax rate | 5.80% - 9.30% | 7.55% |
| Cost of debt | 5.80% - 15.60% | 10.70% |
| WACC | 6.4% - 15.5% | 10.9% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 3.68 | 5.41 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 20.80% | 35.20% |
| Tax rate | 5.80% | 9.30% |
| Debt/Equity ratio | 14.97 | 14.97 |
| Cost of debt | 5.80% | 15.60% |
| After-tax WACC | 6.4% | 15.5% |
| Selected WACC | 10.9% | |
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 SOHO:
cost_of_equity (28.00%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (3.68) + 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.