First Midwest - WACC Analysis

First Midwest (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for First Midwest's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of First Midwest'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 First Midwest uses a significant proportion of equity capital.