Alpha Natural Resources - WACC Analysis

Alpha Natural Resources (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Alpha Natural Resources's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Alpha Natural Resources'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 Alpha Natural Resources uses a significant proportion of equity capital.