Lumber Liquidators - WACC Analysis

Lumber Liquidators (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Lumber Liquidators's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Lumber Liquidators'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 Lumber Liquidators uses a significant proportion of equity capital.