Capitol Bancorp - WACC Analysis

Capitol Bancorp (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Capitol Bancorp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Capitol Bancorp'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 Capitol Bancorp uses a significant proportion of equity capital.