Sara Lee - WACC Analysis

Sara Lee (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Sara Lee's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Sara Lee'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 Sara Lee uses a significant proportion of equity capital.