Western Refining - WACC Analysis

Western Refining (Weighted Average Cost of Capital (WACC) Analysis)

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Helpful Information for Western Refining's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Western Refining'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 Western Refining uses a significant proportion of equity capital.