Discount rate for private company with 100% equity
What sort of discount rate do I use for evaluation of a capital budgeting project assuming company is 100% equity with no debt and is private limited? I dont think using industry average beta, unlevering it and then using beta to find Re from CAPM is good because CAPM usually works well for public companies so doing this method does not give accurate Re for the private company.
How would you guys go about doing it?
What is the size of the company? If it is a large private company, and you can find suitable comparables on the public market, then you can use CAPM and unlevered Beta, if not, Ibbotson gives you the Wacc for each industry. So you can use that and adjust it for company specific risks.
company is a small company with annual revenues of about USD3 million. How do I find what is the company specific risk and what constitutes it?
Company specific risks are risks that only apply to the company itself and not to the overall industry. Ie. Is the management experienced, do they have a good supplier, what are their marketing efforts like, etc.. There is no specific way to quantify company specific risk, its mostly a judgement call.
Magni accusamus perferendis ipsa quia. Modi natus sed enim aperiam nam. Nostrum quisquam modi ut quae occaecati voluptas.
Enim qui id quaerat magnam ipsa et culpa. Quaerat unde molestias corporis dolores recusandae facere. Sint omnis sed quidem rem nam vel soluta ut.
Doloribus cumque aspernatur nihil numquam id blanditiis. Sed incidunt et enim nihil pariatur qui. Vel aspernatur qui nesciunt aliquid ex.
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...