Homex Development - WACC Analysis

Homex Development (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Homex Development's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Homex Development'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 Homex Development uses a significant proportion of equity capital.