Brown-Forman - WACC Analysis

Brown-Forman (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Brown-Forman's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Brown-Forman'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 Brown-Forman uses a significant proportion of equity capital.