Neutral Tandem - WACC Analysis

Neutral Tandem (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Neutral Tandem's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Neutral Tandem'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 Neutral Tandem uses a significant proportion of equity capital.