The WACC of Service Properties Trust (SVC) is 13.2%.
| Range | Selected | |
| Cost of equity | 8.50% - 27.40% | 17.95% |
| Tax rate | 0.40% - 2.30% | 1.35% |
| Cost of debt | 5.60% - 20.90% | 13.25% |
| WACC | 5.7% - 20.8% | 13.2% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1 | 4.02 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.50% | 27.40% |
| Tax rate | 0.40% | 2.30% |
| Debt/Equity ratio | 17.5 | 17.5 |
| Cost of debt | 5.60% | 20.90% |
| After-tax WACC | 5.7% | 20.8% |
| Selected WACC | 13.2% | |
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 SVC:
cost_of_equity (17.95%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1) + 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.