Linear Technology - WACC Analysis

Linear Technology (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Linear Technology's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Linear Technology'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 Linear Technology uses a significant proportion of equity capital.