WACC: Current or Target Capital Structure?
Pretty quick question on WACC and the correct capital structure percentage to use. Specifically, I was wondering if you use the relevant company's current D/D+E and E/D+E ratio, or the "Target" capital structure based on comparable companies.
I noticed that BIWS says "current" capital structure but others say base it on target. Specifically for an interview setting, is it preferable/safer to say which one? I had always thought it was just based on the company's own current capital structure, but maybe I thought so because that's simpler.
their wacc is based on their current capital structure because their risks and leverage are a direct result of their current structure and characteristics. however, in a dcf, you might adjust your discount rate to figures that are closer to industry standard as a way to reflect changes in the company's capital structure that's less risky or more in line with everyone else's. I think its merely a perspective/timeline difference but usually i think people assume capital structure eventually grows closer towards industry norm. either way, I always clarified in interviews
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