Aracruz Celulose - WACC Analysis

Aracruz Celulose (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Aracruz Celulose's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Aracruz Celulose'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 Aracruz Celulose uses a significant proportion of equity capital.