Tim Hortons (Weighted Average Cost of Capital (WACC) Analysis)
Helpful Information for Tim Hortons's Analysis
What is the WACC Formula? Analyst use the WACC Discount Rate (weighted average cost of capital) to determine Tim Hortons'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 Tim Hortons. Value Investing Importance? This method is widely used by investment professionals to determine the correct price for investments in Tim Hortons before they make value investing decisions. This WACC analysis is used in Tim Hortons's discounted cash flow (DCF) valuation and see how the WACC calculation affect's Tim Hortons's company valuation.
WACC Analysis Information
1. The WACC (discount rate) calculation for Tim Hortons uses comparable companies to produce a single WACC (discount rate). An industry average WACC (discount rate) is the most accurate for Tim Hortons over the long term. If there are any short-term differences between the industry WACC and Tim Hortons's WACC (discount rate), then Tim Hortons is more likely to revert to the industry WACC (discount rate) over the long term.
2. The WACC calculation uses the higher of Tim Hortons'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 Tim Hortons uses a significant proportion of equity capital.