Apartment Investment - WACC Analysis

Apartment Investment (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Apartment Investment's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Apartment Investment'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 Apartment Investment uses a significant proportion of equity capital.