Sonesta International Hotels - WACC Analysis

Sonesta International Hotels (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Sonesta International Hotels's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Sonesta International Hotels'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 Sonesta International Hotels uses a significant proportion of equity capital.