Hewlett-Packard - WACC Analysis

Hewlett-Packard (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Hewlett-Packard's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Hewlett-Packard'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 Hewlett-Packard uses a significant proportion of equity capital.