Pacific Sunwear - WACC Analysis

Pacific Sunwear (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Pacific Sunwear's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Pacific Sunwear'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 Pacific Sunwear uses a significant proportion of equity capital.