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