Hersha Hospitality - WACC Analysis

Hersha Hospitality (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Hersha Hospitality's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Hersha Hospitality'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 Hersha Hospitality uses a significant proportion of equity capital.