The WACC of Speedemissions Inc (SPMI) is 25.6%.
| Range | Selected | |
| Cost of equity | 35.50% - 48.90% | 42.20% |
| Tax rate | 26.20% - 27.00% | 26.60% |
| Cost of debt | 20.90% - 48.00% | 34.45% |
| WACC | 15.9% - 35.4% | 25.6% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 6.88 | 7.86 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 35.50% | 48.90% |
| Tax rate | 26.20% | 27.00% |
| Debt/Equity ratio | 41.1 | 41.1 |
| Cost of debt | 20.90% | 48.00% |
| After-tax WACC | 15.9% | 35.4% |
| Selected WACC | 25.6% | |
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 SPMI:
cost_of_equity (42.20%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (6.88) + 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.