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