Great Northern Iron Ore - WACC Analysis

Great Northern Iron Ore (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Great Northern Iron Ore's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Great Northern Iron Ore'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 Great Northern Iron Ore uses a significant proportion of equity capital.