Merchants Bancshares - WACC Analysis

Merchants Bancshares (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Merchants Bancshares's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Merchants Bancshares'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 Merchants Bancshares uses a significant proportion of equity capital.