Duke Energy - WACC Analysis

Duke Energy (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Duke Energy's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Duke Energy'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 Duke Energy uses a significant proportion of equity capital.