Jones Apparel Group - WACC Analysis

Jones Apparel Group (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Jones Apparel Group's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Jones Apparel Group'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 Jones Apparel Group uses a significant proportion of equity capital.