Hi All,
I am creating a DCF and had a relatively basic question. The Company plans to acquire another company in the forecast period and will raise an equivalent amount of debt to finance the transaction. Is this a wash? Should I increase CapEx by the amount of the acquisition, or not since it will be debt financed?
Thank you!
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if you include the acquired company's operations into your forecast then you should attach the related debt/equity for the transaction.
The method of financing does not matter, except for the change in WACC as a result of capital structure change. So yes, if it's a Capex, then it needs to be included as a Capex.
Unfortunately, if the WACC changes significantly at all, you shouldn't be using a traditional DCF for the valuation.
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