Mac-Gray Corp - WACC Analysis

Mac-Gray Corp (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Mac-Gray Corp's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Mac-Gray Corp'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 Mac-Gray Corp uses a significant proportion of equity capital.