Equity Residential - WACC Analysis

Equity Residential (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Equity Residential's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Equity Residential'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 Equity Residential uses a significant proportion of equity capital.