BP Prudhoe Bay Royalty - WACC Analysis

BP Prudhoe Bay Royalty (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for BP Prudhoe Bay Royalty's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of BP Prudhoe Bay Royalty'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 BP Prudhoe Bay Royalty uses a significant proportion of equity capital.