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