Diamond Mgmt - WACC Analysis

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

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Helpful Information for Diamond Mgmt's Analysis

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

WACC Analysis Information

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

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