Which D/E ratio should I use on a 3 year projection of the following?
Hey all,
I've been tasked to do a DCF to attain the enterprise value for a company. I'm trying to calculate the proper WACC to discount my future cash flows but I have some tricky inputs (all assumptions given).
Year 1: The company takes a loan for $10,000,000 and gains equity from investors worth $10,000,000
Year 2: The company repays $5,000,000 of the loan
Year 3: The company repays $5,000,000 of the loan.
Now I'm trying to get an enterprise value, and I calculated what the FCF's are, but now I need to discount them at WACC. I know my cost of equity and I know my cost of capital, but what weights do I use when calculating WACC?
Edit: Additional Information
Levered Comparable Beta: 1.10
Market debt to equity ratio: 0.40
You unlever at your current D/E because you want to take your capital structure out of the equation so you're only left with equity. Then you relever using your comp D/E because you want your future capital structure to be similar to the rest of the market.
So you start by unlevering using your current D/E which is 1. So, assuming you incorporate a 30% tax rate, your unlevered beta is 1.1/1.7 = ~0.65. So then you'd relever at the comp D/E and your beta is ~0.85.