Universal Corporation - WACC Analysis

Universal Corporation (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Universal Corporation's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Universal Corporation'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 Universal Corporation uses a significant proportion of equity capital.