1st Source - WACC Analysis

1st Source (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for 1st Source's Analysis

What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine 1st Source'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 1st Source. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in 1st Source before they make value investing decisions. This WACC analysis is used in 1st Source's discounted cash flow (DCF) valuation and see how the WACC calculation affect's 1st Source's company valuation.

WACC Analysis Information

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

2. The WACC calculation uses the higher of 1st Source'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 1st Source uses a significant proportion of equity capital.