Hi,
I have a company with several divisions and a centralised Treasury. The company borrows on a centralised basis and has a specific cost of debt.
I am assessing the hurdle rate for one of the divisions. The cost of equity is clearly assessed on a division (sector) basis. But what should I do with the cost of debt: 1. Take the company's cost of debt (based on centralised borrowing capability) or 2. Synthetic rating assessment (Damodaran's thingy) or 3. Sector based - for instance, a median
Additional question - how to establish the appropriate D/E: 1. Take the sector median or 2. Use the existing (combined) D/E ratio of the company or 3. Assess the optimal independently
Thanks!
1 & 2
Is WACC the hurdle rate? (Originally Posted: 11/16/2017)
Why do we use WACC as the discount rate?
Is it to check whether the NPV is positive? To understand that our FCFF grew more than the WACC rate?
I am trying to understand the very basic intuition behind using WACC as the discount rate...
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