Cost of Capital for a Hedge Fund
I understand that when PE firms build LBO models, the discount rate (cost of capital) for the target company is the PE firm's target return (20% IRR). When long-only hedge funds do DCFs for stocks, do they discount the target's future unlevered free cash flows with their own target annualized return? Or does one still have to use the company's actual WACC as the discount rate? Been spinning my head on this for a while, would appreciate any feedback.
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