EZchip Semiconductor - WACC Analysis

EZchip Semiconductor (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for EZchip Semiconductor's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of EZchip Semiconductor'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 EZchip Semiconductor uses a significant proportion of equity capital.