alexpasch:
You're supposed to use the market value of equity.

For debt, you're also supposed to use the market value, but book value is often used because it's a good proxy (for equity, book value is not a good proxy).

I am using market value of equity and market value of debt.

 
lavak3:
alexpasch:
You're supposed to use the market value of equity.

For debt, you're also supposed to use the market value, but book value is often used because it's a good proxy (for equity, book value is not a good proxy).

I am using market value of equity and market value of debt.

Market value of equity can't be less than zero, where are you getting the number from? There are some situations where the enterprise value can be negative (i.e. the value of net cash is greater than the equity), but those are rare and there's always a reason why that is the case...

 

^ was about to post something very similar to what GJones said.

Sucks that you have to do this for a private company...

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Best Response

Equity value can be zero if a company is bankrupt, but it can't be less than zero...

I would go with what GJones said if you have no info on which to get an equity value. I would not assume zero. The equity has to have some value or else the company is bankrupt...

Are you doing this for work or school? If for work, then you can just model out the cash flows and calculate an IRR, almost no one uses WACC for real work...it's more of an academia thing...

 

Answered my own question with some help from you folk:

Assets = Liabilities + shareholder's equity. In this company Liabilities = $30m. Assets= $16m. Owner's equity = $14m. In particular, owner's equity has $4m in paid-in capital and -$18m in retained earnings. I guess this is the book value of equity, and that can be negative.

The market value is unknown because the shares don't trade and don't have a price. There is no market. You can use a waterfall to determine what the share prices will be at certain valuations, but linking the EV to share price and share price to EV will be recursive and a pain.

I just ended up using the industry's D/E ratio (which, by the way, is THIRTY. 30.) and calculated the EV.

 

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