Mercury General - WACC Analysis

Mercury General (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Mercury General's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Mercury General'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 Mercury General uses a significant proportion of equity capital.