Southern Union - WACC Analysis

Southern Union (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Southern Union's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Southern Union'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 Southern Union uses a significant proportion of equity capital.