Advance Auto Parts - WACC Analysis

Advance Auto Parts (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Advance Auto Parts's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Advance Auto Parts's investment risk. WACC Formula = Cost of Equity (CAPM) * Common Equity + (Cost of Debt) * Total Debt. The result of this calculation is an essential input for the discounted cash flow (DCF) analysis for Advance Auto Parts. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Advance Auto Parts before they make value investing decisions. This WACC analysis is used in Advance Auto Parts's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Advance Auto Parts's company valuation.

WACC Analysis Information

1. The WACC (discount rate) calculation for Advance Auto Parts uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Advance Auto Parts over the long term. If there are any short-term differences between the industry WACC and Advance Auto Parts's WACC (discount rate), then Advance Auto Parts is more likely to revert to the industry WACC (discount rate) over the long term.

2. The WACC calculation uses the higher of Advance Auto Parts's WACC or the risk free rate, because no investment can have a cost of capital that is better than risk free. This situation may occur if the beta is negative and Advance Auto Parts uses a significant proportion of equity capital.