Foundation Coal - WACC Analysis

Foundation Coal (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Foundation Coal's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Foundation Coal'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 Foundation Coal uses a significant proportion of equity capital.