Array BioPharma - WACC Analysis

Array BioPharma (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Array BioPharma's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Array BioPharma'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 Array BioPharma uses a significant proportion of equity capital.