Murphy Oil (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Murphy Oil's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Murphy Oil'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 Murphy Oil. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Murphy Oil before they make value investing decisions. This WACC analysis is used in Murphy Oil's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Murphy Oil's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Murphy Oil uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Murphy Oil over the long term. If there are any short-term differences between the industry WACC and Murphy Oil's WACC (discount rate), then Murphy Oil is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Murphy Oil'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 Murphy Oil uses a significant proportion of equity capital.