Krispy Kreme Doughnuts - WACC Analysis

Krispy Kreme Doughnuts (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Krispy Kreme Doughnuts's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Krispy Kreme Doughnuts'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 Krispy Kreme Doughnuts uses a significant proportion of equity capital.