Towers Watson - WACC Analysis

Towers Watson (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Towers Watson's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Towers Watson'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 Towers Watson uses a significant proportion of equity capital.