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