Perfect World - WACC Analysis

Perfect World (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Perfect World's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Perfect World'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 Perfect World uses a significant proportion of equity capital.