Permian Basin Royalty - WACC Analysis

Permian Basin Royalty (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Permian Basin Royalty's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Permian Basin Royalty'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 Permian Basin Royalty uses a significant proportion of equity capital.