The WACC of Trustpower Ltd (TPW.NZ) is 8.2%.
| Range | Selected | |
| Cost of equity | 8.60% - 10.90% | 9.75% |
| Tax rate | 27.70% - 28.50% | 28.10% |
| Cost of debt | 5.20% - 5.20% | 5.20% |
| WACC | 7.3% - 9.0% | 8.2% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.7% | 5.7% |
| Adjusted beta | 0.99 | 1.04 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.60% | 10.90% |
| Tax rate | 27.70% | 28.50% |
| Debt/Equity ratio | 0.35 | 0.35 |
| Cost of debt | 5.20% | 5.20% |
| After-tax WACC | 7.3% | 9.0% |
| Selected WACC | 8.2% | |
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 TPW.NZ:
cost_of_equity (9.75%) = risk_free_rate (4.15%) + equity_risk_premium (5.20%) * adjusted_beta (0.99) + 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.