McMoRan Exploration - WACC Analysis

McMoRan Exploration (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for McMoRan Exploration's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of McMoRan Exploration'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 McMoRan Exploration uses a significant proportion of equity capital.