Reed Elsevier - WACC Analysis

Reed Elsevier (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Reed Elsevier's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Reed Elsevier'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 Reed Elsevier uses a significant proportion of equity capital.