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