Meritage Corp - WACC Analysis

Meritage Corp (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Meritage Corp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Meritage Corp'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 Meritage Corp uses a significant proportion of equity capital.