Hugoton Royalty Trust - WACC Analysis

Hugoton Royalty Trust (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Hugoton Royalty Trust's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Hugoton Royalty Trust'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 Hugoton Royalty Trust uses a significant proportion of equity capital.