Terra Industries - WACC Analysis

Terra Industries (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Terra Industries's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Terra Industries'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 Terra Industries uses a significant proportion of equity capital.