Armstrong World Industries - WACC Analysis

Armstrong World Industries (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Armstrong World Industries's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Armstrong World Industries'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 Armstrong World Industries uses a significant proportion of equity capital.