Lan Airlines - WACC Analysis

Lan Airlines (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Lan Airlines's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Lan Airlines'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 Lan Airlines uses a significant proportion of equity capital.