The WACC of Steel & Tube Holdings Ltd (STU.NZ) is 7.0%.
| Range | Selected | |
| Cost of equity | 11.40% - 17.00% | 14.20% |
| Tax rate | 27.40% - 28.20% | 27.80% |
| Cost of debt | 4.00% - 7.50% | 5.75% |
| WACC | 5.3% - 8.7% | 7.0% |
| Category | Low | High |
| Long-term bond rate | 4.3% | 4.8% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 1.38 | 1.91 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 11.40% | 17.00% |
| Tax rate | 27.40% | 28.20% |
| Debt/Equity ratio | 2.49 | 2.49 |
| Cost of debt | 4.00% | 7.50% |
| After-tax WACC | 5.3% | 8.7% |
| Selected WACC | 7.0% | |
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 STU.NZ:
cost_of_equity (14.20%) = risk_free_rate (4.55%) + equity_risk_premium (5.60%) * adjusted_beta (1.38) + 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.