America's Car-Mart - WACC Analysis

America's Car-Mart (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for America's Car-Mart's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of America's Car-Mart'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 America's Car-Mart uses a significant proportion of equity capital.