SOMC WACC - Weighted Average Cost of Capital
The WACC of Southern Michigan Bancorp Inc (SOMC) is 5.6%.
| Range | Selected | |
| Cost of equity | 5.6% - 7.6% | 6.6% |
| Tax rate | 16.2% - 16.5% | 16.35% |
| Cost of debt | 5.0% - 5.0% | 5% |
| WACC | 5.0% - 6.2% | 5.6% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 0.58 | 0.66 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 5.6% | 7.6% |
| Tax rate | 16.2% | 16.5% |
| Debt/Equity ratio | 0.75 | 0.75 |
| Cost of debt | 5.0% | 5.0% |
| After-tax WACC | 5.0% | 6.2% |
| Selected WACC | 5.6% | |
| Debt/Equity | Unlevered | |||
| Peers | Company Name | ratio | Beta | beta |
| SOMC | Southern Michigan Bancorp Inc | 0.75 | 0.33 | 0.2 |
| AMBK | American Bank Inc | 0.35 | 0.07 | 0.06 |
| BOTJ | Bank of the James | 0.35 | 0.19 | 0.14 |
| CCFN | CCFNB Bancorp Inc | 1.3 | 0.21 | 0.1 |
| DIMC | Dimeco Inc | 0.38 | 0.18 | 0.14 |
| DMKBA | Denmark Bancshares Inc | 0.2 | -0.43 | -0.37 |
| JUVF | Juniata Valley Financial Corp | 0.24 | 0.23 | 0.2 |
| KLIB | Killbuck Bancshares Inc | 0.01 | -0.39 | -0.39 |
| PMHG | Prime Meridian Holding Co | 1.19 | 1.17 | 0.59 |
| UBAB | United Bancorporation of Alabama Inc | 0.06 | 0.43 | 0.41 |
| Low | High | |
| Unlevered beta | 0.12 | 0.16 |
| Relevered beta | 0.37 | 0.49 |
| Adjusted relevered beta | 0.58 | 0.66 |
SOMC's CAPM model and how its cost of Equity is calculated
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 SOMC:
cost_of_equity (6.60%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * 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.