JC Penney - WACC Analysis

JC Penney (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for JC Penney's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of JC Penney'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 JC Penney uses a significant proportion of equity capital.