Star Scientific - WACC Analysis

Star Scientific (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Star Scientific's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Star Scientific'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 Star Scientific uses a significant proportion of equity capital.