Pre-Paid Legal - WACC Analysis

Pre-Paid Legal (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Pre-Paid Legal's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Pre-Paid Legal'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 Pre-Paid Legal uses a significant proportion of equity capital.