Pulte Homes - WACC Analysis

Pulte Homes (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Pulte Homes's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Pulte 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 Pulte Homes uses a significant proportion of equity capital.