James River Coal (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for James River Coal's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine James River Coal'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 James River Coal. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in James River Coal before they make value investing decisions. This WACC analysis is used in James River Coal's discounted cash flow (DCF) valuation and see how the WACC calculation affect's James River Coal's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for James River Coal uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for James River Coal over the long term. If there are any short-term differences between the industry WACC and James River Coal's WACC (discount rate), then James River Coal is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of James River Coal'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 James River Coal uses a significant proportion of equity capital.