U.S. Auto Parts - WACC Analysis

U.S. Auto Parts (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for U.S. Auto Parts's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of U.S. Auto Parts'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 U.S. Auto Parts uses a significant proportion of equity capital.