Valero GP Holdings - WACC Analysis

Valero GP Holdings (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Valero GP Holdings's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Valero GP Holdings'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 Valero GP Holdings uses a significant proportion of equity capital.