Question 1

What is Southwest Airlines Co.'s WACC?

Accepted Answer

Southwest Airlines Co. (LUV) has a Weighted Average Cost of Capital (WACC) of 7.95%. This is calculated using a Cost of Equity of 9.01% (via CAPM with a beta of 1.11) and a pre-tax Cost of Debt of 3.86%, with an equity weight of 82.17% in the capital structure.

Question 2

Is Southwest Airlines Co.'s WACC high or low?

Accepted Answer

Southwest Airlines Co.'s WACC of 7.95% is below the typical range of 8-12% for most companies, indicating relatively low cost of capital and lower risk. WACC is used as the discount rate in DCF valuations — a lower WACC results in higher present values of future cash flows.

Question 3

How is Southwest Airlines Co.'s WACC calculated?

Accepted Answer

Southwest Airlines Co.'s WACC is calculated using the formula: WACC = (E/V × Re) + (D/V × Rd × (1-T)). The Cost of Equity (Re) of 9.01% is derived from the CAPM model using a beta of 1.11. The pre-tax Cost of Debt (Rd) is 3.86%. The capital structure is 82.17% equity and 17.83% debt.

Southwest Airlines Co. (LUV) — WACC 分析

WACC 构成

解读

Southwest Airlines Co.（LUV）WACC：7.95%

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Southwest Airlines Co.（LUV） WACC 解读

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