PAETEC - WACC Analysis

PAETEC (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for PAETEC's Analysis

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

WACC Analysis Information

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

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