DCF question: WACC vs IRR?
Hi all,
I've just worked through a simple valuation model (with a terminal value), where I've used the IRR excel function to obtain a percentage.
I wanted to plug the obtained IRR as WACC to discount my cash flows and TV to see if NPV would be equal to 0, seems that it isn't. Using goal seek to find a WACC that makes NPV=0, the percentage it gives me is slightly higher than the =IRR calculated figure.
Can someone kindly explain why this is? I feel that there's a simple answer behind this intuition but can't seem to figure out what exactly.
Thanks in advance!
Is your terminal year cash flow separate from last year of cash flows? If so, the IRR treats them as different years so you should add them rather than drag the function across them.
Mid-year discounting?
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