Pike Electric - WACC Analysis

Pike Electric (Weighted Average Cost of Capital (WACC) Analysis)



Helpful Information for Pike Electric's Analysis

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

WACC Analysis Information

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

2. The WACC calculation uses the higher of Pike Electric'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 Pike Electric uses a significant proportion of equity capital.