Canadian Pacific Railway - WACC Analysis

Canadian Pacific Railway (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Canadian Pacific Railway's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Canadian Pacific Railway'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 Canadian Pacific Railway uses a significant proportion of equity capital.