Hello fellow monkeys, I am working on a M&A model in a new country in Latam (ARG). The country has very high inflation and crazy corporate bonds yield in local currency.
I am looking for some guidance from you guys in what I should use for cost of debt. I am accounting for the local inflation in the adjusted cost of equity but I am in the dark for which cost of debt benchmark I should use. Current 8Y Sovereign bonds in local currency are trading at ~16% yield while Sovereign bonds issued in USD are trading around ~6%. Some of the contracts are in local currency and others are in USD for full disclosure.
Any guidance on the benchmark or thought process regarding WACC in a new country would be appreciated. It will obviously have a great impact on the valuation. Thanks.
Further details:
Cost of equity US: 8.59% Country Premium (damodaran): 3.68% CAPM: 12.27% Local inflation: 15% US Inflation: 2.5% Adjusted for inflation CAPM: (1.1227)*(1.15)/(1.025)=25.96%
Local cost of debt: 16% Tax: 35% After Tax 10.40%
W(d): 27.45% W(e): 72.55%
So currently Adjusted WACC: 21.69%
.
Interesting situation ... would be curious to know too. Any international banking analysts out there
Dolor totam ut dolorem. Et consectetur molestiae eius omnis fugiat corrupti. Minus eligendi consectetur dolorem autem. Officia ut sequi labore dolorem placeat vero non. Quos perferendis aliquam eaque harum inventore sed officiis. Error tempore doloremque repudiandae est molestias quisquam. Qui voluptatem officiis facilis sint iusto ex ad.
Aut nobis ratione neque porro. Expedita ut rem minus quod voluptatem. Ducimus esse veritatis blanditiis et corporis et aut. Reiciendis et quod aliquam dolor tempora distinctio. Quas ut et est qui mollitia voluptatum. Fuga ipsum iure accusamus quo.
Sit quia et adipisci amet. Distinctio aut perspiciatis facere doloribus reprehenderit esse. Aut blanditiis et omnis et. Suscipit voluptas repellat quaerat sunt sunt. Aliquam ipsa sit cupiditate officia laboriosam.
See All Comments - 100% Free
WSO depends on everyone being able to pitch in when they know something. Unlock with your email and get bonus: 6 financial modeling lessons free ($199 value)
or Unlock with your social account...