The WACC of Extraction Oil & Gas Inc (XOG) is 7.8%.
| Range | Selected | |
| Cost of equity | 7.60% - 9.80% | 8.70% |
| Tax rate | 6.90% - 18.60% | 12.75% |
| Cost of debt | 4.30% - 7.00% | 5.65% |
| WACC | 6.8% - 8.8% | 7.8% |
| Category | Low | High |
| Long-term bond rate | 3.2% | 3.7% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 1.06 | 1.08 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 7.60% | 9.80% |
| Tax rate | 6.90% | 18.60% |
| Debt/Equity ratio | 0.33 | 0.33 |
| Cost of debt | 4.30% | 7.00% |
| After-tax WACC | 6.8% | 8.8% |
| 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 XOG:
cost_of_equity (8.70%) = risk_free_rate (3.45%) + equity_risk_premium (4.70%) * adjusted_beta (1.06) + 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.