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