Petro-Canada - WACC Analysis

Petro-Canada (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Petro-Canada's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Petro-Canada'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 Petro-Canada uses a significant proportion of equity capital.