I was wondering why the cost of equity for WACC is calculated using CAPM but the cost of stock in a merger model is used by inverting the P/E ratio. I don't understand why these costs are different. Any insight would be appreciated.
| +170 | Analyst: Why is UBS IB doing worse than peers?, UBS CFO: No Comment | 29 | 16h |
| +163 | UBS Tech layoff | 52 | 2d |
| +149 | UBS’s M&A BANKERS ARE DOING TERRIBLY. $200M EXTRA IS BEING CUT | 31 | 1d |
| +119 | Leaked Interview Questions to Recruiting Services | 56 | 13h |
| +64 | How do YOU manage networking requests? | 20 | 12h |
| +60 | Are target prospects getting dumber? | 27 | 1d |
| +34 | MBB Pay Raises | 26 | 2d |
| +22 | US 2027 SA IB worried about background check | 7 | 1h |
| +21 | Earliest you can get fired | 7 | 12h |
| +20 | Career Crossroads | 4 | 42m |
Career Resources
Get instant access to lessons taught by experienced private equity pros and bulge bracket investment bankers including financial statement modeling, DCF, M&A, LBO, Comps and Excel Modeling.
good question hope someone will be able to correct me if i'm wrong but the one given by the CAPM is the average (for a certain period- cf how much historical data you've used to make it) best opportunity cost you were able to get on the market given a certain level of sensitivity to market risk (beta). This means that in order for this company'sb stock[/b] to add value given all the equity in stock market & the actual risk free rate and it's beta it must beat this CAPM Re. it does not mean that the company actually did beat it. (P/E)^-1 = Earnings/Market Cap ~~ Yield on that security - this is what the stock has been actually doing (if u calculate ur P/E ratio using historical data)
Sed qui iste laudantium. Ut officia non delectus. Alias non odit occaecati reiciendis vero eaque molestiae. Ab minus qui magnam quod nihil vitae.
Qui non rerum blanditiis autem. Omnis molestiae ullam quia est quo doloribus non. Nam reprehenderit voluptates delectus harum sequi voluptatibus id.
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...