Extreme Networks - WACC Analysis

Extreme Networks (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Extreme Networks's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Extreme Networks'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 Extreme Networks uses a significant proportion of equity capital.