The WACC of Zhihu Inc (ZH) is 7.8%.
| Range | Selected | |
| Cost of equity | 8.70% - 12.60% | 10.65% |
| Tax rate | 0.20% - 0.30% | 0.25% |
| Cost of debt | 5.00% - 5.00% | 5.00% |
| WACC | 6.8% - 8.8% | 7.8% |
| Category | Low | High |
| Long-term bond rate | 2.6% | 3.1% |
| Equity market risk premium | 4.2% | 5.2% |
| Adjusted beta | 1.44 | 1.72 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 8.70% | 12.60% |
| Tax rate | 0.20% | 0.30% |
| Debt/Equity ratio | 1 | 1 |
| Cost of debt | 5.00% | 5.00% |
| 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 ZH:
cost_of_equity (10.65%) = risk_free_rate (2.85%) + equity_risk_premium (4.70%) * adjusted_beta (1.44) + 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.