Constellation Brands - WACC Analysis

Constellation Brands (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Constellation Brands's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Constellation Brands'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 Constellation Brands uses a significant proportion of equity capital.