Cross Timbers Royalty - WACC Analysis

Cross Timbers Royalty (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Cross Timbers Royalty's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Cross Timbers Royalty'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 Cross Timbers Royalty uses a significant proportion of equity capital.