Kraft Foods - WACC Analysis

Kraft Foods (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Kraft Foods's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Kraft Foods'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 Kraft Foods uses a significant proportion of equity capital.