Trex Company - WACC Analysis

Trex Company (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Trex Company's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Trex Company'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 Trex Company uses a significant proportion of equity capital.