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### Notes for Technical Interview Questions

Investment BankingDuring 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 ques ...

53 comments6 May 2020 - PEinAsia

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% a ...

47 comments6 Jul 2016 - unclebiff

### WACC for different industries

Investment BankingI 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 lo ...

22 comments25 Jul 2017 - rom831

### Calculating WACC for Private Company with 100% Equity

Investment BankingDoes anyone know how to calculate the WACC (or any appropriate discount rate) for a startup service company with no debt, funded through a mix of employee capital and venture capital? I don't think this matters, but no dividends are paid over 5 year ...

42 comments16 Mar 2018 - Anonymous Monkey

### Cost of Capital vs. WACC

Investment BankingConcise interview answer to what the difference of cost of capital vs WACC? What is the Cost of Capital vs. the WACC? When talking about discount rates, the term "cost of capital" and "WACC" are sometimes used interchangeably- but it i ...

42 comments24 Jan 2018 - New Yorker

### Debt in WACC

Investment BankingHi, guys I have 2 questions. 1. Please help me understand what debt contains, when calculating WACC When I calculate debt for WACC, I take following things:- Commercial papers (short-term debt)- Revolver debt (short-term debt)-Long-term debt-Capital Lease ...

37 comments10 Oct 2016 - Vlad.Nikul

### Determining WACC for negative shareholder equtiy companies

Investment BankingI'm looking at a company whose shareholder's equity is < 0 thanks to a long history of losses (retained earnings is very negative). How can I determine a WACC for this? The D/E is negative. At this point do I just start assuming an ideal D/E ...

19 comments13 Feb 2019 - lavak3

### WACC- Risk Free

Investment BankingWhat 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 <1% rate because that is your curren ...

7 comments3 May 2020 -

### Need help with interview question

Investment BankingIf I borrow money to invest into the stock market, what is the appropriate discount rate to use for the investment? Is it the cost of debt b/c 100% of the money is borrowed? Or is it the cost of equity because the money is invested into the stock market? ...

25 comments10 Nov 2009 - nick_123

### What discount rate do you use in your valuations?

Asset ManagementHi 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 m ...

18 comments7 Oct 2014 - Da1nonly

### Calculating cost of equity for a company with negative book equity

Investment BankingI'm doing a valuation on a privately held company with a negative book value of equity. The equity is negative because the company is in its early years, but has already distributed far more than its initial contribution+earnings. The ability to make ...

21 comments10 Aug 2012 - notoriousbigg

### WACC formula?

Investment BankingOkay so I got this interview question: When you use WACC for a DCF model you have E+D+P in your WACC formula, but isn't it EV already? When you do a DCF you are calculating its EV, which you already have in your WACC formula. You are using EV to calc ...

21 comments17 Nov 2010 - genieli

### Market Risk Premium

Investment BankingI am trying to figure out WACC. In practice, what risk-rate do you use? What market risk premium do you choose? something like 5%? In addition, for a company with a market cap of 1billion USD. What size premium do you apply? Would appreciate your insights ...

15 comments28 Oct 2012 - XTNN

### need help finding Goldman Sachs WACC

Business School and GMATI need help on finding the WACC for Goldman Sachs group for their fiscal year of 2009 ending in Dec 31st (It's for my financial management master's class). If anybody here could give me the numbers and calculations quick that would be greatly ap ...

14 comments18 Jun 2012 - thegame00

### Is Line of Credit treated as LTD?

Investment BankingI 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 enter ...

11 comments30 Aug 2014 - Bmc89

### WACC for a small business

Investment BankingHi all, Hoping I can get some help here. I need to do a valuation for a very small company. Its a consulting business that sources its clients/customers mostly through their website. Anyway, I am intending on doing a DCF to value the company, but my bigge ...

12 comments18 Jun 2012 - balooshi

### Effect of Cash on WACC

Investment BankingCould someone explain how cash balance affects the WACC? How would the WACC of a company compare if it has no cash versus if it had a cash balance of $1bn? My guess is that cash is a part of equity and having a large cash balance would increase the propor ...

11 comments28 May 2013 - erixliechtenstein

### Most important part of a valuation???

Investment BankingOk everybody...I would love to get as much input on this from as many people from as many countries as possible. I just spoke with a senior banker (remember I am in India), and he told me that in the entire valuation process significantly more importance ...

8 comments6 May 2020 - big_dreams_banker

### WACC Analysis Questions

Investment BankingHey 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 assist ...

6 comments24 Jul 2019 - TBDasofNow

### wacc calculation- what should I use for market value of equity for a private company

Investment BankingMy 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 com ...

5 comments1 Mar 2020 - aprilmood

### WACC if there is no beta?

Investment Bankingfellow 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 calc ...

10 comments20 Jan 2013 - hoodrich

### cost of capital for a company with no cash equity

Investment Bankingtheoretical 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? WACC ...

9 comments4 Aug 2015 - PA

### EY TAS Val vs Alvarez & Marsal Val

Investment BankingIf 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 bo ...

5 comments3 Dec 2019 - Randomwalk45

### Question about WACC

Investment BankingWhen discerning the book value of debt for WACC, do you look at the book value of ALL liabilities including current liabilities, or do you just look at the book value of Long-Term Liabilities. Thanks in advance for anybody willing to help. WACC ...

9 comments27 Dec 2010 - BANK3R

### Real Estate WACC Valuation

Real EstateI 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 year ...

7 comments11 Feb 2016 - johnsmith123456

### Manipulate WACC?

Investment BankingHi, 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 ...

7 comments10 Aug 2013 - N96k2q2NVy

### WACC and PPP Cost of Captal

Investment BankingWhy is a MNC's WACC in one country higher than it's PPP Cost of Capital for the same country? Is it because of short term inflation rate exposure? WACC Cost of Capital ...

7 comments22 Apr 2009 - KingKongBanker

### Statutory tax rate in WACC

Investment BankingCan someone please explain as to why we use statutory tax rate (instead of the effective in the calculation for WACC?? One reason I could think of is that statutory is more normalized. WACC ...

6 comments12 Oct 2011 - dreamtheater12

### WACC- Rate of return

Investment BankingHi guys, I haven't done Valuations for a while and I'm currently trying to understand it again. Hope you can help me: Let's assume a company has an EBIT of 1,000,000 and we acquire it at 4x EBIT--> 4,000,000 What's the rate of retur ...

5 comments24 Apr 2016 - alligator09

### Where to find WACC?

Investment BankingDon't have access to Bloomberg or any other paid subscription services, so was wondering if anyone knows any free sites where you can find public companies WACC? Wikiwealth does it, but their method of calculation doesnt seem the most accurate. M& ...

5 comments15 Apr 2013 - Zweihander

### NEED GENIUS HERE-COME QUICK

Investment Bankingsay, this segment of a company is expected to produce-100K cash flow till perpetuity how do i discount it? discounting negative value makes no sense eg, if my cost of capital was 10% i would have a PV of-1M if my cost of capital was 50% i would have a PV ...

5 comments7 Dec 2012 - bigun

### DCF result- Equity value from EV

Investment BankingHi 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? subtract debt which i ...

4 comments20 Feb 2018 - Artem_Artem

### What is the WACC with No Long Term Debt?

Off TopicWhen calculating WACC, what if a firm has no long-term debt, but has current liabilities (Working Capital line items only) How do we go about computing the D/E ratios? Or is the WACC basically the cost of equity.. Thanks. Weighted Average Cost of Capital ...

4 comments21 Dec 2017 - wikileaks

### Question about NPV and WACC

New User IntroductionsHi my name is Luis and I have this question for my finance class. I have this question and i have searched for hours so I came here to see if anyone can help me answer this. How would the discount rate and the NPV of a project change with the firm being s ...

4 comments7 Dec 2012 - neskim

### Effect of Debt on stock prices

Investment BankingHi 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 ex ...

3 comments11 May 2018 - Berlin

### WACC and Unlevered Beta

Investment BankingHey 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 + Bl ERP, WACC= (1-t) Rd D/(D+E) + Re*E/(D+E), aren't w ...

3 comments19 Oct 2016 - Dangleve

### Calculating IRR of cash flows with terminal value

Investing, Markets & MacroeconomicsI 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 Enterp ...

3 comments20 Sep 2016 - Interesnea

### Hmm, is this WACC low?

Corporate Finance, Development and StrategyHi 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? WACC What is the WACC? ...

3 comments25 Jan 2015 - LeftFields

### Marginal Tax Rate for Private S Corporation (DCF Question)?

Investment BankingHi 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? Tax dcf WACC ...

3 comments6 May 2015 - koozi

### Does a company ever want a higher WACC?

Corporate Finance, Development and StrategyTrying 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 movemen ...

2 comments14 May 2020 - Bobby_George

### Industry risk premium

Investment BankingHey monkeys, im doing a DCF for a target media company and i need to estimate the cost of equity, any one know where i can find a list of industry risk premia? Any suggestions on any other approach are welcome, thanks WACC Cost of Equity ...

3 comments2 May 2013 - KingGidor4

### What counts as "debt" in a company's capital structure?

Investment BankingI'm trying to model out an mid stage tech venture, and the only things that could count as "debt" are a government granted forgivable loan, and some convertible debentures. The government loan is forgivable after 5 or so years if they meet ...

3 comments26 Jul 2012 - hoodinternet

### WACC / Discount rates for oil sector

Investment Bankingdoes anybody know what rates are typically used? obviously will vary from country to country, particularly thinking off Russia (see the TNK-BP/Rosneft deal). Is this a fair valuation WACC Salary Eastern Europe ...

2 comments6 May 2020 - Sam398

### What causes WACC to invert?

Investment BankingHi 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 ...

2 comments20 Nov 2017 - Felix-Lenk

### How to calculate size/company specific risk premium

Investing, Markets & MacroeconomicsHi 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 direc ...

2 comments20 Sep 2017 - bruyant

### Formulas? Any insight is appreciated.

Investment BankingHi 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. Esse ...

2 comments8 Aug 2016 - syruha

### DCF for Private company (WACC)

Investment BankingI 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 h ...

2 comments16 Mar 2016 - dcrh

### WACC vs. Equity Residual Method

Equity ResearchHi! 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! WACC ...

2 comments12 Nov 2014 - Krapter

### Young Oil Industry Company- WACC Calculation

Investment BankingTrying 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 g ...

2 comments10 Apr 2014 - angelrich

### Is Return on Capital (ROC) affected by changes in debt

Investment BankingWhat happens to ROC if you increase debt...I believe it would just stay the same, correct? Goldman Sachs finance debt equity WACC ...

2 comments29 Jan 2013 - YellowLorrySlow

### Doubt

Investment BankingA company is considering investing in a new project. All investment will come from debt (10% rate, for example). Is it right to discount the project cash flows at a 10% rate or should I calculate company's new WACC considering this new debt and disco ...

2 comments4 Dec 2012 - Monkey Junior Banker

### Choosing weighted average cost of capital (wacc)

Corporate Finance, Development and StrategyHi 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 proje ...

1 comment1 Nov 2019 - Corporate Finan...

### wacc breakdown (net debt usage/ average debt)

Investment BankingDear 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-damodar ...

1 comment23 Oct 2019 - plkhv

WACC, or Weighted Average Cost of Capital, is a financial metric used to measure the cost of capital to a firm. It is most usually used to provide a discount rate for a financed project, because the cost of financing the capital is a fairly logical price ...

8 Nov 2017 - WallStreetOasis.com

### WACC real rate calculation

Corporate Finance, Development and StrategyHello 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 ...

1 comment6 May 2020 - borodinov_sv

### T Mobile + Sprint Cost Synergies- $6bn synergies, $43bn NPV, 8% WACC

Investing, Markets & MacroeconomicsJ. 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 mor ...

1 comment16 Sep 2018 - Thomas Ksidol

### Company or investor WACC?

Equity ResearchI 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. ...

1 comment14 Aug 2018 - afterSun

### Comprehensive Guide to Beta in the CAPM and Cost of Capital

Investment BankingI'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 th ...

1 comment12 Jun 2018 - newyorkermonkey

### Valuation Guidance related to WACC / CoE

Investment BankingI 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' ...

1 comment5 Mar 2018 - mraza123

### Minority Interest in Capital Structure

Investment BankingHello 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%, e ...

1 comment27 Feb 2018 - OffBrandDealSled

### Interest rates on debt depending on capital structure

Investment BankingI am doing an assignment on capital structure and I am trying to estimate the optimal capital structure for a company. In order to do so, I need interest rates on debt depending on the percent of firm financed with debt. Can someone help me with the inter ...

1 comment6 May 2020 - maja.mac

### Using Market Cap in D/E weights for WACC and Beta Calculations

Investment BankingWhy 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 i ...

1 comment9 Sep 2017 - iwantthosesocks

### Project analysis: using WACC and cost and price escalation indexes

Corporate Finance, Development and StrategyWhile 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? WACC ...

16 May 2017 - ricsegre

### How do you estimate a market value of debt? (UK companies)

Investment BankingI'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 i ...

1 comment16 Apr 2017 - ecleopatra

### Activision Blizzard Capital Structure. WACC or APV

Equity ResearchGood 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 relativ ...

1 comment13 Feb 2017 - nearr

### Valuation doubts

Investment BankingHey 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. Calculation o ...

11 Dec 2015 - worldofecofin

### Beta for Illiquid assets

Investment BankingHi 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 yo ...

1 comment16 Sep 2015 - deskmonkey

### cost of capital of state-owned enterprises

Equity Research1. 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 ...

1 comment12 Nov 2014 - Qureshi

### Technical: Pre-tax WACC = unlevered cost of capital (APV)

Investment BankingI 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 ca ...

25 Jun 2014 - bbkingblues1

### Brokers who detail the calculation of cost of equity in their notes

Investment BankingHello, 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:) Equity Research WACC Cost of Equity broker report ...

23 Apr 2014 - Sim_

If you are confused by all the lingo getting thrown around Wall Street and the WSO forums, you've come to the right place. We know it can be confusing but don't worry, we are here to help! Below you will find a comprehensive list of finance acro ...

26 Mar 2015 - Asatar

### Earning Cost of Equity

Investment BankingWhat are the ramifications of a company not earning its cost of equity? I read an investment pitch that noted a particular company could not earn its cost of equity but I was wondering why that even mattered on the equity side since the company generally ...

1 comment23 Nov 2012 - Bigtime44

### Equity Portion of WACC in an IPO

Investment BankingThere was a recent question about valuation methods for an IPO and the involvement of WACC. It got me thinking about the equity portion of WACC in such a situation. Considering it is an IPO, does that mean that the only type of equity that can exist is un ...

1 comment28 Dec 2010 - Curious Kong