Plum Creek Timber - WACC Analysis

Plum Creek Timber (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Plum Creek Timber's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Plum Creek Timber'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 Plum Creek Timber uses a significant proportion of equity capital.