Valley National - WACC Analysis

Valley National (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Valley National's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Valley National'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 Valley National uses a significant proportion of equity capital.