The WACC of Southern Co (SO) is 5.1%.
| Range | Selected | |
| Cost of equity | 4.90% - 7.20% | 6.05% |
| Tax rate | 14.50% - 17.40% | 15.95% |
| Cost of debt | 4.00% - 4.90% | 4.45% |
| WACC | 4.3% - 5.9% | 5.1% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 0.23 | 0.41 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 4.90% | 7.20% |
| Tax rate | 14.50% | 17.40% |
| Debt/Equity ratio | 0.7 | 0.7 |
| Cost of debt | 4.00% | 4.90% |
| After-tax WACC | 4.3% | 5.9% |
| Selected WACC | 5.1% | |
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 SO:
cost_of_equity (6.05%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (0.23) + 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.