The WACC of Spark Energy Inc (SPKE) is 6.4%.
| Range | Selected | |
| Cost of equity | 6.00% - 8.10% | 7.05% |
| Tax rate | 18.00% - 19.80% | 18.90% |
| Cost of debt | 4.00% - 5.10% | 4.55% |
| WACC | 5.5% - 7.3% | 6.4% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 0.68 | 0.75 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 6.00% | 8.10% |
| Tax rate | 18.00% | 19.80% |
| Debt/Equity ratio | 0.25 | 0.25 |
| Cost of debt | 4.00% | 5.10% |
| After-tax WACC | 5.5% | 7.3% |
| Selected WACC | 6.4% | |
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 SPKE:
cost_of_equity (7.05%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (0.68) + 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.