Capstead Mortgage - WACC Analysis

Capstead Mortgage (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Capstead Mortgage's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Capstead Mortgage'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 Capstead Mortgage uses a significant proportion of equity capital.