Suburban Propane - WACC Analysis

Suburban Propane (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Suburban Propane's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Suburban Propane'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 Suburban Propane uses a significant proportion of equity capital.