Finding a YTM for WACC Pre-Tax Cost of Debt
How would you find an appropriate YTM for a company like MSFT? Say you are doing a DCF that projects out 5 years. Does this mean that you should use a YTM from a Note/Bond due in 2025 (due in 5 years)? Is there a more appropriate way to find YTM or Pre-tax cost of debt for WACC?
bump
if you’re thinking about pre tax cost of debt - you want to use long term cost of debt funding. so take a 20yr+ duration MSFT bond and use that as your cost of debt
Could you explain the thinking behind taking a bond with a 20 yr duration? Is that just so I'm choosing a bond that is long term?
DCF doesn't end at 5 yrs, that's just the explicit forecast period (some people do 7-10 years even). WACC assumes constant capital structure into perpetuity. Put another way, when you're valuing the 2nd "stage" of the dcf, you're still using the same discount rate. So for sure it doesn't make sense to use a bond w maturity of 5 yrs. I think person above is suggesting 20 yr bcuz it's more representative of long term financing
Repellendus rem at voluptatem ad illo dolor aut. Sed eius aut voluptatem consequatur voluptate.
Rerum nihil excepturi eligendi modi ducimus delectus. Cum consequatur tempore id expedita consequatur adipisci. Sed rerum eum fuga est. Blanditiis ut ipsa reprehenderit occaecati et. Adipisci pariatur enim assumenda.
Ea vel tenetur ullam deleniti molestiae libero qui. Eius eaque dolores qui ratione enim debitis illo. Quis est voluptas sit sequi similique rerum quia. Quia ad repellendus cum autem saepe accusantium laboriosam cumque. Est rerum facilis illum et natus sint. Enim est sit ad atque deserunt. Magni animi minima quas iure saepe deleniti dolore.
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...