Spectra Energy - WACC Analysis

Spectra Energy (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Spectra Energy's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Spectra Energy'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 Spectra Energy uses a significant proportion of equity capital.