Analysis behind how much does EV change if WACC changes by 1%?
The following was asked in one of the interview for an anlayst position Question; How much does EV change if WACC changes by 1%?
What is the analysis behind the answer?
I would say, that absolute amount change of EV, will depend on the - Cash flow amounts - WACC original point=> if WACC is changing from 12-13%, then the EV change should be less than if WACC is changing from 5-6% - Will also discuss the Inverse relationship between EV and WACC -However, if all cash flows are negative, there is a direct relationship, the greater the WACC, the greater the Value
Any additional thoughts?
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