LifePoint Hospitals - WACC Analysis

LifePoint Hospitals (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for LifePoint Hospitals's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of LifePoint Hospitals'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 LifePoint Hospitals uses a significant proportion of equity capital.