The WACC of Zuora Inc (ZUO) is 20.5%.
| Range | Selected | |
| Cost of equity | 10.00% - 13.00% | 11.50% |
| Tax rate | 2.20% - 2.90% | 2.55% |
| Cost of debt | 7.00% - 114.30% | 60.65% |
| WACC | 9.4% - 31.5% | 20.5% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 1.33 | 1.46 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 10.00% | 13.00% |
| Tax rate | 2.20% | 2.90% |
| Debt/Equity ratio | 0.23 | 0.23 |
| Cost of debt | 7.00% | 114.30% |
| After-tax WACC | 9.4% | 31.5% |
| Selected WACC | 20.5% | |
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 Zuora:
cost_of_equity (11.50%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (1.33) + 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.