Hi all,
I understand that cost of debt is typically calculated through the the weighted YTM on a company's bond issuance, and cost of equity is normally calculated out through CAPM, but I was wondering when assessing the cost of debt/equity for distressed companies we would still use these metrics, or are there alternative measures that would typically be looked at first?
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An approximation for COD for a distressed company can be the YTM on the most recently issued debt security. WACC you need to adjust beta and add a distress premium. Can get tricky / situation dependent. This is rough back of the napkin math I've done before. Can get more complex in an engagement. See literature below for more resources:
https://pages.stern.nyu.edu/~adamodar/New_Home_Page/valquestions/distre…
https://pages.stern.nyu.edu/~adamodar/pdfiles/country/distresspres.pdf
https://www.kroll.com/-/media/assets/pdfs/publications/valuation/coc/co…
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