Forest Labs - WACC Analysis

Forest Labs (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Forest Labs's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Forest Labs'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 Forest Labs uses a significant proportion of equity capital.