The WACC of Veritas Farms Inc (VFRM) is 7.5%.
| Range | Selected | |
| Cost of equity | 5.40% - 10.20% | 7.80% |
| Tax rate | 26.20% - 27.00% | 26.60% |
| Cost of debt | 7.00% - 13.50% | 10.25% |
| WACC | 5.2% - 9.9% | 7.5% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | -0.11 | 0.6 |
| Additional risk adjustments | 2.0% | 2.5% |
| Cost of equity | 5.40% | 10.20% |
| Tax rate | 26.20% | 27.00% |
| Debt/Equity ratio | 87.92 | 87.92 |
| Cost of debt | 7.00% | 13.50% |
| After-tax WACC | 5.2% | 9.9% |
| Selected WACC | 7.5% | |
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 VFRM:
cost_of_equity (7.80%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (-0.11) + risk_adjustments (2.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.