Associated Estates Realty - WACC Analysis

Associated Estates Realty (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Associated Estates Realty's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Associated Estates Realty'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 Associated Estates Realty. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Associated Estates Realty before they make value investing decisions. This WACC analysis is used in Associated Estates Realty's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Associated Estates Realty's company valuation.

WACC Analysis Information

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

2. The WACC calculation uses the higher of Associated Estates Realty'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 Associated Estates Realty uses a significant proportion of equity capital.