First Mercury Financial - WACC Analysis

First Mercury Financial (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for First Mercury Financial's Analysis

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

WACC Analysis Information

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

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