Knight Transportation - WACC Analysis

Knight Transportation (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Knight Transportation's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Knight Transportation'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 Knight Transportation uses a significant proportion of equity capital.