Bank Of Montreal (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Bank Of Montreal's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Bank Of Montreal'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 Bank Of Montreal. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Bank Of Montreal before they make value investing decisions. This WACC analysis is used in Bank Of Montreal's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Bank Of Montreal's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Bank Of Montreal uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Bank Of Montreal over the long term. If there are any short-term differences between the industry WACC and Bank Of Montreal's WACC (discount rate), then Bank Of Montreal is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Bank Of Montreal'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 Bank Of Montreal uses a significant proportion of equity capital.