Calavo Growers - WACC Analysis

Calavo Growers (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Calavo Growers's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Calavo Growers'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 Calavo Growers uses a significant proportion of equity capital.