Red Lion Hotels - WACC Analysis

Red Lion Hotels (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Red Lion Hotels's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Red Lion Hotels'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 Red Lion Hotels uses a significant proportion of equity capital.