Hmm, is this WACC low?
Hi Guys,
I`ve got a firm with a low beta (.5) and a low gearing of 25%, eventually yielding a 4% WACC. (7.61% Rm)
It feels a wee bit too low, doesn`t it ?
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Allthough you migth be getting the right answer from the CAPM you should always look at the big picture to check if it makes sense for you.
WACC is essentially an opportunity cost. So what would you expect in a normal year a comparable company would yield in the market? Would you be comfortable with that 4% expected return?
Probably the best way is to think about a range you would be comfortable with and then change your Rm assumption and Risk free assumption to back that out.
Thanks,
Well obviously it seems I have no other choice but to rig it, since going by the book gives me only so much... Especially because QEs sent bond yields to low as hell, so can`t even rely on a somewhat high Rd to pull it up either.
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