DCF- Include Transactions Cost?
If you do a DCF and say your holding period is 5 years. On the last year you want to get rid of the property/asset. There's a transaction fee of $1 million do you factor that as a cost in the last year?
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yes...all deal-associated fees should be factored into enterprise value
Absolutely.
Fees on exit - yes.
Fees on entry - only those fees that would be payable following a decision to do the deal.
For example, consider a PE fund looking at an acquisition. It has $5m in DD costs it will need to pay advisers whether or not the deal was done.
When the PE team is preparing a investment committee paper with DCF for the deal, the $5m in costs should be excluded from the DCF because those costs are irrelevant to the decision being made. That is, the approve/reject decision has no impact on whether or not those fees will be spent, as they are sunk costs.
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