The WACC of Gulf & Western Company Inc (TERA) is 15.9%.
| Range | Selected | |
| Cost of equity | 4.90% - 4,471.70% | 2,238.30% |
| Tax rate | 26.20% - 27.00% | 26.60% |
| Cost of debt | 7.00% - 36.50% | 21.75% |
| WACC | 5.2% - 26.7% | 15.9% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -667.81 | 248.89 |
| Additional risk adjustments | 3073.0% | 3073.5% |
| Cost of equity | 4.90% | 4,471.70% |
| Tax rate | 26.20% | 27.00% |
| Debt/Equity ratio | 59345.55 | 59345.55 |
| Cost of debt | 7.00% | 36.50% |
| After-tax WACC | 5.2% | 26.7% |
| Selected WACC | 15.9% | |
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 TERA:
cost_of_equity (2,238.30%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-667.81) + risk_adjustments (3,073.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.