Ford Motor (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Ford Motor's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Ford Motor'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 Ford Motor. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Ford Motor before they make value investing decisions. This WACC analysis is used in Ford Motor's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Ford Motor's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Ford Motor uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Ford Motor over the long term. If there are any short-term differences between the industry WACC and Ford Motor's WACC (discount rate), then Ford Motor is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Ford Motor'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 Ford Motor uses a significant proportion of equity capital.