Energy Transfer Equity - WACC Analysis

Energy Transfer Equity (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Energy Transfer Equity's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Energy Transfer Equity'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 Energy Transfer Equity uses a significant proportion of equity capital.