NRG Energy - WACC Analysis

NRG Energy (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for NRG Energy's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of NRG Energy'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 NRG Energy uses a significant proportion of equity capital.