The WACC of Talon Petroleum Ltd (TPD.AX) is 7.8%.
| Range | Selected | |
| Cost of equity | 10.20% - 13.90% | 12.05% |
| Tax rate | 30.00% - 30.00% | 30.00% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.8% - 8.7% | 7.8% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 1.21 | 1.46 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.20% | 13.90% |
| Tax rate | 30.00% | 30.00% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 6.8% | 8.7% |
| Selected WACC | 7.8% | |
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 TPD.AX:
cost_of_equity (12.05%) = risk_free_rate (4.25%) + equity_risk_premium (5.60%) * adjusted_beta (1.21) + 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.