Medco Health - WACC Analysis

Medco Health (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Medco Health's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Medco Health'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 Medco Health uses a significant proportion of equity capital.