Public Serv. Enterprise - WACC Analysis

Public Serv. Enterprise (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Public Serv. Enterprise's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Public Serv. Enterprise'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 Public Serv. Enterprise uses a significant proportion of equity capital.