Morgans Hotel - WACC Analysis

Morgans Hotel (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Morgans Hotel's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Morgans Hotel'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 Morgans Hotel uses a significant proportion of equity capital.