Palm Harbor Homes - WACC Analysis

Palm Harbor Homes (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Palm Harbor Homes's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Palm Harbor Homes'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 Palm Harbor Homes uses a significant proportion of equity capital.