fellow monkeys,
im fairly new to valuation so please excuse if this question is actually really easy.
i currently have to valuate an automobil supply company that is not publicly traded (and therefore does not have a beta?) and i was wondering how to calculate the WACC if you dont have a beta to estimate the cost of equity? do you just assume a certain percentage?
thanks in advance, i appreciate it.
cheers.
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Look for comparable companies and use the median beta of those companies. Also, you can do use the build-up method (instead of CAPM). The build up does not include betas
Here's a decent source of data to give you an estimate - http://pages.stern.nyu.edu/~adamodar/
Click on Data and then find Total Beta by Industry Sector.
Valuation is all malarkey anyways. Experienced bankers know that they can make a company's valuation come out to be whatever number they want.
BINGO
^^^ Can we not put that out in the public until AFTER my analyst stint? kthx
If you have trouble finding good comps, I would recommend using the build up method as the ValuationGuru pointed out.
If you can't find any publicly traded comparable companies, then you can't accurately approximate the beta. So that's the rationale for using the build up method.
Since you can't look at a historical Beta, just come up with your own from the Public Comps ( I actually prefer this). So take about 5 comparable companies, look up the levered beta for each one, unlever each one to get rid of the influence from the companies' respective capital structures and for comparability purposes, then take the median of the set ( usually). Finally, re-lever the beta according to your specific company's capital structure. This is your levered beta for use in the cost of equity.
Of course: Bu = Bl/ [ ( 1+ (1-t)) x (D/E) ]
Comparable companies like valuationGURU said is the most common. However, some middle market banks will just use an arbitrary 13-18% discount rate.
Find the median UNlevered beta of comparable companies, then relever this beta with the target's capital structure.
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