WACC

Hi all, I am currently trying to create a DCF model valuing an asset purchase by a US municipal utility with limited information available, and am struggling with the WACC/discount rate in particular. The best I can think of is the DOE has guidelines using a 3% discount rate but I'm not sure that...

02 Feb 2023

Thoughts on using a staggered discount rate in a DCF to value a growth company? For e.g. over a 10 year horizon using 15% for the last 5 years and 25% for the first 5 - the idea is that the company is significantly derisked in the first 5 years

10 Nov 2022

Dear all, Should I decrease the WACC for a target in the explicit forecast period to reflect maturity or keep it constant? A decrease may be difficult to substantiate, whereas a constant discount factor would be overly simplistic? By constant I mean, ie 10% over 10 years with the change only...

02 Jun 2022

Why re-lever beta based on the median percentage debt (as percentage of capital structure) of comps? 2. Why calculate WACC weights based on median capital structure of comps? 3. Why should the cap str of comps move you to the implied value? Isn't this relevant mostly for companies that are not...

10 Dec 2021

I have always wondered how did we come up with these many premiums to add to our cost of capital calculation e.g. size premium, liquidity premium. Like how we do know if a certain risk factor has already been factored into the cost of capital calculation (presumably beta of the cost of capital). It...

23 Apr 2021

Hello everyone, I recently talked with a girl who, during her summer analyst interview, got asked this question: "How does WACC change if you value a company in an emerging market?". How would you people answer this? Thanks a lot!

11 Jan 2021

LTM Cash interest paid as a percent of debt? Interest expense that is inclusive of amort. of OID/DIC as a percentage of debt? Market rate of TLs/bonds? Do you include mandatory debt repayments (such as 1% per annum on TLBs)? What about if you have a floating rate that is dependent on LIBOR? There...

05 Jan 2021

Hello, how we can estimate market value of debt if we dont know any detail about loans of copmany (YTD and others) just book value of debt and cost all of the interest togheter in income statement. All list issued of bonds is availble in the internet but arout 72 bil is from bonds debt and 20 bil...

29 Dec 2020

Trying to decipher this sentence that came from a request on how we are reporting WACC; "a higher WACC is better as many times it is used as a benchmark for capital projects", which started from a discussion in waterfalling trending WACC movements and that basically the upward movement of WACC...

14 May 2020

What would you guys use right now as a risk free rate? The 10 year bond yield seems to be insanely low, would you use this sub 1% rate? Or go with a past one like 3%. My intuition is you have to go with the very low

03 May 2020

My first post here at WSO forum. Hopefully I can get some answers! My question is: For wacc calculation, apparently we assume book value of debt roughly equivalent to market value of debt. What about market value of equity assuming it's a private company? What do you do? Am I suppose to take the...

01 Mar 2020

If you had to choose between the following two offers which one would you choose and why? Alvarez & Marsal Valuation Services - Sr. Assoc. - 20-25% year end bonus based off hours billed. EY TAS - Valuation & Business Modeling - Senior - 10% year end bonus, however EY is offering 10k more on the base...

29 Nov 2019

Hi A company has two projects - A and B - which it wants to finance entirely with debt. If the company proceeds with project A it can get a special govt-subsidized loan for 5%. If it goes with project B it will need to borrow from the bank at 8%. Both projects have similar cash flows (before...

01 Nov 2019

Dear users, Please help me to understand wacc calculation. I do my master programme and teacher of Corporate Finance course requires us to calculate wacc using average net debt. Could you help me understand the logic? I have checked: -berk, demarzo -damodaran -brealey myers And i haven't manage to...

23 Oct 2019

Hey all, Two quick questions. I am running a DCF and am looking to fine tune some of the assumptions in the WACC analysis. Specifically, what are the best assumptions to use for "Size Premiums" and the "Market Risk Premium"? Any assistance here would be appreciated

24 Jul 2019

Hello Everybody! Could you please help me with a discounting rate issue? I'm working on an investment project with 60% leverage. Let's say nominal cost of equity 15% (Russian rubles), and cost of debt (jpy) is about 3.5%. Tax shield 20%. Then my WACC will be calculated as 15% x 0,4 + 3.5% x 0,6 x (1...

06 Nov 2018

J. Braxton Carter T-Mobile US, Inc. - Executive VP & CFO: "Hey, the first thing, we talked about run-rate synergies of $6-plus billion. I want to emphasize that's pretax. We've talked about cost to achieve of $15 billion and gave you more details on this call. That's pretax. And we've talked about...

16 Sep 2018

I was confronted with this issue a week ago - investor or company WACC? When estimating the value of a listed company, say Facebook. Do you use Facebook's WACC or the WACC of a highly diversified investor, say a mutual fund? Might be a weird question.

13 Aug 2018

I was wondering if anyone could help explain how WACC might be different for industries? I understand that debt is cheaper than equity, and that start-ups would have less debt than mature companies, but what about between industries? Specifically, I am looking for how WACC differs between real...

21 Jul 2018

I've been wanting to do a post like this for a while given the amount of confusion regarding terminology and the various formulas during IB interview prep. All from Berk&DeMarzo's Corporate Finance and an MBA Corporate Finance class. Note that this is academic and probably overkill, but I hope it's...

12 Jun 2018

Hi everyone, what is the effect of leverage on stock prices, should you expect better performance from a company with high leverage that is not going to suffer from cyclicality/downturn? My understanding is that higher leverage boosts ROE so you should expect better performance from that part. Also,...

11 May 2018

I was doing valuation of a company in emerging markets and I have a question in mind but couldn't find a proper theory suggesting a solution. Suppose, the company receives its revenue in US$ currency and incur costs in INR currency. The company's functional currency is INR so the revenues are...

05 Mar 2018

Hello everyone, this may seem like a stupid question but when creating a basic DCF model, how should i factor Minority interest into WACC? Specifically in the case of a costco DCF I'm working on. I'll save all of the details but debt is 36.3%, equity is 62.1%, and MI is 1.6%. For all intents and...

27 Feb 2018

Hi all What is the correct way to arrive at equity value after the EV was calculated (via DCF)? Suppose we have to value equity of a PRIVATE company. We identified target cap. structure, performed DCF and got the EV. What to do next? 1. subtract debt which is taken from the BS (assumption that book...

18 Feb 2018

Hi together, I'm currently working on a valuation and cannot figure out my mistake (if it is one). I calculate WACC by using the basic formula: WACC = (E/V) * Cost of Equity + (1-(E/V)) * (1-t) * Cost of Debt Since the company is private I calculate the Cost of Equity using the CAPM and a relevered...

20 Nov 2017

Why does the Street use E = market value of the firm's equity (Market Cap) for the D/E weights in the calculation of WACC and beta (unlevering and relevering), not book value of equity? I understand that for debt, we simply use what's recorded in book since we assume market value and book value of...

09 Sep 2017

Hi guys, I'm currently trying to build out a DCF, and am stuck on the WACC. How do you estimate a company's size premium or company specific risk premium? I know valuation is as much art as science, but can someone at least point me in the direction of working this out please? I've tried multiple...

07 Sep 2017

While analyzing an investment project, do you think it is correct to use WACC as a discount rate while also using cost and price escalation indexes on a yearly basis?

16 May 2017

I've trying to follow Damodaran's instructions on estimating a market value of debt: *"The market value of debt is usually more difficult to obtain directly, since very few firms have all their debt in the form of bonds outstanding trading in the market. Many firms have non-traded debt, such as bank...

16 Apr 2017

Good morning, I am at the moment trying to value Activision Blizzard. I did some research with regards to which method I should use to value the company, either WACC (DCF) or APV. In my studies, I found that WACC should be used if the firm keeps a relatively constant capital structure or if the firm...

13 Feb 2017

Hey guys, one issue with CAPM, WACC and Beta just doesn't seem right to me. Maybe somebody wouldn't mind helping me to figure it out. The usual formulas are Bu=Bl/(1+(1-t)D/E), Re= Rf + BlERP, WACC= (1-t)RdD/(D+E) + Re*E/(D+E), aren't we double counting tax shields if we use them together?

18 Oct 2016

I have a project with an initial outlay (Year 0) and 10 years of forecasted positive FCFFs and FCFEs. After 10 years, I use a Gordon/Perpetuity Growth Model to determine Terminal Value. I built DCF model and discounted FCFFs with WACC (to arrive at Enterprise Value) and FCFEs with Cost of Equity (to...

08 Sep 2016

Hi Everyone, My friend currently works in PWM at a major firm as an Associate. He is basically an assistant but has learned a LOT about the industry. He has a second round interview with a global fund manager that services only institutional clients. Essentially he is making the switch from the...

08 Aug 2016

I understand, at least on a superficial/calculation level, how to discount cash flows/calculate NPV. But, I am not sure I have a deep enough understanding of the concept behind it. Let me use a simple example of a bond. There are two bonds, one earns 5% and the other 6%, both with par of $1000....

25 Jun 2016

I have a question about valuation hoping anyone could help. I have a private high-tech company with positive income for 3 years. I would like to use industry average D/V, E/V ratio to calculate WACC and Beta for the cost of equity. However, this company has about 40% preferred stock. The WACC=...

16 Mar 2016

I am working on a feasibility financial model for a commercial complex. For this purpose I am calculating NPV of the project. The project will be financed by 50% debt 50% equity, however the debt is a fully amortising loan with equal payments over 10 years. The company will have no debt after 10...

25 Jan 2016

Hey guys, I looked around a lot for answers, but I'm still struggling to understand the answer to two important valuation related topics that I'm currently going through for my interview preparation. So, thought of posting it here. 1. Calculation of FCFF - the two accepted formulas seem to use EBIT...

11 Dec 2015

Hi all! Today during class we were looking at the valuation of real estate and for the example given, the WACC was provided. I was just thinking that for the calculation of WACC, how do you estimate the beta? My understanding of beta estimation is that you will require a list of returns for both the...

16 Sep 2015

Hi Guys, I`ve got a firm with a low beta (.5) and a low gearing of 25%, eventually yielding a 4% WACC. (7.61% Rm) It feels a wee bit too low, doesn`t it ?

25 Jan 2015

1. The questions below are for partially state-owned enterprises that are publicly listed a) Can the government fund its debt indefinitely? if so what would be the impact on the cost of capital? do we use only CAPM or WACC? b) Which cashflow method would be suitable for its valuation? c) Can the...

09 Nov 2014

Hi! I was just wondering if Discounted Cash Flow using WACC and Equity Residual Method should yield the same result? I can't seem to get the same value. Thanks!

27 Oct 2014

Hi guys, was hoping I could get some insight on this esp. from those buysiders at long only value shops i currently work on the buy side focusing on resource sector companies, I don't think I've ever calculated a company's WACC outside of my MBA studies, we always use a 10% discount rate. The...

30 Aug 2014

I am trying to figure out where a company's Line of Credit fits into my DCF model. I have a DCF model, using a WACC, where I am trying to find the equity value. The answer I receive after the sum of present values and residual value would be my enterprise value. I now need to deduct Long Term Debt...

28 Aug 2014

Hi monkeys. I am not quite sure what tax rate to use for my DCF when calculating the cost of debt. Should I go ahead and tax-affect with a corporate tax rate of 35% or 0% because it's a pass-through entity? Any suggestions?

26 Aug 2014

During a recent round of interviews with several banks, headhunters sent across a number of potential technical questions that they said I should be very comfortable with. However, through all of my interviews I was never actually asked any technical questions (although I did do a 3 hour modelling...

09 Jan 2014

I can derive the pre-tax wacc from an infinitely recursive cash flow stream, but why is this equivalent to using the "unlevered cost of capital"? Because this discount rate assumes a constant leverage ratio (i.e. fluctuating debt levels), how can it be that the PV of unlevered cash flows give the...

25 Jun 2014

Hello, I'm searching some names of brokers who detail how the calculate the cost of equity (with equity risk premium and son on) brokers note. Have you any name of brokers which do this ? Thanks :)

22 Apr 2014

Trying to calculate WACC for a business that is born out of shale revolution expected to be cash flow positive in 2015. Need to calculate both from private and public company perspective. Looking at several research publications by Plummer, HBS etc that give a range of 20-35% for late stage...

03 Apr 2014

theoretical question for you guys, say you have a private company that has no cash equity but 5x debt at 10%. if you wanted to do a DCF, what is your WACC?

17 Sep 2013

Hi, I was wondering if a firm can change its WAAC by restructuring its debt, so that it is mostly short run - eventually reducing YtM (reduction of risk)? I guess you cannot just restructure debt like that because it matches an assets cash flow and if the cash flow increases so that you could, the...

10 Aug 2013