Baytex Energy Trust - WACC Analysis

Baytex Energy Trust (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Baytex Energy Trust's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Baytex Energy Trust'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 Baytex Energy Trust uses a significant proportion of equity capital.