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