Research in Motion - WACC Analysis

Research in Motion (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Research in Motion's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Research in Motion'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 Research in Motion uses a significant proportion of equity capital.