Silicon Image - WACC Analysis

Silicon Image (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Silicon Image's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Silicon Image'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 Silicon Image uses a significant proportion of equity capital.