The WACC of Rainbow Denim Ltd (532441.BO) is 4.9%.
| Range | Selected | |
| Cost of equity | 19.40% - 29.80% | 24.60% |
| Tax rate | 30.00% - 30.00% | 30.00% |
| Cost of debt | 4.00% - 7.80% | 5.90% |
| WACC | 3.4% - 6.4% | 4.9% |
| Category | Low | High |
| Long-term bond rate | 6.9% | 7.4% |
| Equity market risk premium | 8.3% | 9.3% |
| Adjusted beta | 1.51 | 2.36 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 19.40% | 29.80% |
| Tax rate | 30.00% | 30.00% |
| Debt/Equity ratio | 25.31 | 25.31 |
| Cost of debt | 4.00% | 7.80% |
| After-tax WACC | 3.4% | 6.4% |
| Selected WACC | 4.9% | |
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 532441.BO:
cost_of_equity (24.60%) = risk_free_rate (7.15%) + equity_risk_premium (8.80%) * adjusted_beta (1.51) + 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.