Kansas City Southern - WACC Analysis

Kansas City Southern (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Kansas City Southern's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Kansas City Southern'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 Kansas City Southern uses a significant proportion of equity capital.