The WACC of Westpac Banking Corp (WBC.AX) is 5.9%.
| Range | Selected | |
| Cost of equity | 9.10% - 11.60% | 10.35% |
| Tax rate | 30.90% - 31.70% | 31.30% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 5.4% - 6.3% | 5.9% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 5.1% | 6.1% |
| Adjusted beta | 1 | 1.08 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 9.10% | 11.60% |
| Tax rate | 30.90% | 31.70% |
| Debt/Equity ratio | 1.86 | 1.86 |
| Cost of debt | 5.00% | 5.00% |
| After-tax WACC | 5.4% | 6.3% |
| Selected WACC | 5.9% | |
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 WBC.AX:
cost_of_equity (10.35%) = risk_free_rate (4.25%) + equity_risk_premium (5.60%) * adjusted_beta (1) + 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.