Hanover Insurance - WACC Analysis

Hanover Insurance (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Hanover Insurance's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Hanover Insurance'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 Hanover Insurance uses a significant proportion of equity capital.