The WACC of Sound Energy PLC (SOU.L) is 6.1%.
| Range | Selected | |
| Cost of equity | 3.10% - 28.30% | 15.70% |
| Tax rate | -% - 0.10% | 0.05% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 4.8% - 7.3% | 6.1% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | -0.57 | 2.98 |
| Additional risk adjustments | 2.5% | 3.0% |
| Cost of equity | 3.10% | 28.30% |
| Tax rate | -% | 0.10% |
| Debt/Equity ratio | 9.14 | 9.14 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 4.8% | 7.3% |
| 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 SOU.L:
cost_of_equity (15.70%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (-0.57) + risk_adjustments (2.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.