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