Ultra Petroleum - WACC Analysis

Ultra Petroleum (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Ultra Petroleum's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Ultra Petroleum'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 Ultra Petroleum uses a significant proportion of equity capital.