National Grid Transco - WACC Analysis

National Grid Transco (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for National Grid Transco's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of National Grid Transco'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 National Grid Transco uses a significant proportion of equity capital.