The WACC of Teekay LNG Partners LP (TGP) is 7.3%.
| Range | Selected | |
| Cost of equity | 5.30% - 9.70% | 7.50% |
| Tax rate | 2.70% - 3.80% | 3.25% |
| Cost of debt | 5.70% - 9.10% | 7.40% |
| WACC | 5.4% - 9.1% | 7.3% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 0.38 | 0.96 |
| Additional risk adjustments | 0.5% | 1.0% |
| Cost of equity | 5.30% | 9.70% |
| Tax rate | 2.70% | 3.80% |
| Debt/Equity ratio | 1.91 | 1.91 |
| Cost of debt | 5.70% | 9.10% |
| After-tax WACC | 5.4% | 9.1% |
| Selected WACC | 7.3% | |
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 TGP:
cost_of_equity (7.50%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (0.38) + risk_adjustments (0.75%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.