The WACC of Tullow Oil PLC (TLW.L) is 9.1%.
| Range | Selected | |
| Cost of equity | 39.70% - 58.50% | 49.10% |
| Tax rate | 19.00% - 19.00% | 19.00% |
| Cost of debt | 6.60% - 7.60% | 7.10% |
| WACC | 8.0% - 10.2% | 9.1% |
| Category | Low | High |
| Long-term bond rate | 4.0% | 4.5% |
| Equity market risk premium | 6.0% | 7.0% |
| Adjusted beta | 5.97 | 7.66 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 39.70% | 58.50% |
| Tax rate | 19.00% | 19.00% |
| Debt/Equity ratio | 11.95 | 11.95 |
| Cost of debt | 6.60% | 7.60% |
| After-tax WACC | 8.0% | 10.2% |
| Selected WACC | 9.1% | |
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 TLW.L:
cost_of_equity (49.10%) = risk_free_rate (4.25%) + equity_risk_premium (6.50%) * adjusted_beta (5.97) + 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.