Tejon Ranch - WACC Analysis

Tejon Ranch (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Tejon Ranch's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Tejon Ranch'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 Tejon Ranch uses a significant proportion of equity capital.