PDL BioPharma (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for PDL BioPharma's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine PDL BioPharma'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 PDL BioPharma. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in PDL BioPharma before they make value investing decisions. This WACC analysis is used in PDL BioPharma's discounted cash flow (DCF) valuation and see how the WACC calculation affect's PDL BioPharma's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for PDL BioPharma uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for PDL BioPharma over the long term. If there are any short-term differences between the industry WACC and PDL BioPharma's WACC (discount rate), then PDL BioPharma is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of PDL BioPharma'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 PDL BioPharma uses a significant proportion of equity capital.