How should I best determine the equity weighting (E/E+D) for a private company's WACC calculation? This isn't a startup but a 10 year old private company, that has a capital structure which is unlikely to change. Is it best practice to use the book value of equity shown in the balance sheet. Or should I determine the median E/D+E weighting from listed comps, albeit this private company has a different cap structure? Or is there another, better, option? Thank you
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I would go with using comps to get EV
You start with using an market average gearing to get to a valuation. From there you indeed plug the real equity value (based on target leverage - could well be lower than market average because of owner's preferences) into the formula with which you create a circular reference that you let excel solve a few times.
Highly debated topic however, probably many opinions on this. But everybody will agree you should never use book value.
Thank you very much
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