National Interstate - WACC Analysis

National Interstate (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for National Interstate's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of National Interstate'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 National Interstate uses a significant proportion of equity capital.