Anworth Mortgage - WACC Analysis

Anworth Mortgage (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Anworth Mortgage's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Anworth Mortgage'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 Anworth Mortgage uses a significant proportion of equity capital.