Erie Indemnity - WACC Analysis

Erie Indemnity (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Erie Indemnity's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Erie Indemnity'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 Erie Indemnity uses a significant proportion of equity capital.