MFA Mortgage - WACC Analysis

MFA Mortgage (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for MFA Mortgage's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of MFA Mortgage'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 MFA Mortgage uses a significant proportion of equity capital.