Diamond Offshore - WACC Analysis

Diamond Offshore (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Diamond Offshore's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Diamond Offshore'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 Diamond Offshore uses a significant proportion of equity capital.