Tower Group - WACC Analysis

Tower Group (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Tower Group's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Tower Group'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 Tower Group uses a significant proportion of equity capital.