Electro Rent - WACC Analysis

Electro Rent (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Electro Rent's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Electro Rent'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 Electro Rent uses a significant proportion of equity capital.