wacc calculation - what should I use for market value of equity for a private company
My first post here at WSO forum. Hopefully I can get some answers!
My question is: For wacc calculation, apparently we assume book value of debt roughly equivalent to market value of debt. What about market value of equity assuming it's a private company? What do you do? Am I suppose to take the trading comp or multiple regression to figure out my market value of equity?
Thanks!
Few things come to mind, not sure how accurate I am so experiences monkeys might need to chip in:
-You can assume a cost of equity that a sponsor/investor/entrepreneur miught want. E.g. a VC might be targeting 40%, so thats your cost of equity -You can use the option pricing model to value the equity.
I just had to run this exercise for a large private company and used public trading comps given its size and limited earnings data points for generating a beta against the S&P. Here is a good summary from stern on your options. http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valquestions/totalbe…. good luck!
hands down the best source for this
I know people would do a DCF and loop it with like 100 itterations such that you would get close to your Equity value.
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