Magellan Midstream - WACC Analysis

Magellan Midstream (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Magellan Midstream's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Magellan Midstream'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 Magellan Midstream uses a significant proportion of equity capital.