WACC

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

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

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 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

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

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

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 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

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

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

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

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 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

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

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

Could 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 proportion of equity in the capital structure,...

27 May 2013

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'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 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

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

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

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

I'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 distributions comes from another line of business...

10 Aug 2012

Hi, 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 Leases - Current portions of capital lease...

05 Feb 2012

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

Does 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 projections (it's a growing company). WACC...

30 Nov 2010

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

Concise 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 is important to draw a distinction between the two. Put simply,...

16 Nov 2010

Okay 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 calculate EV. Isn't it a circular? and how do you...

17 Nov 2010

Hi 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 biggest issue is calculation a WACC. Anyone got...

07 Jan 2011

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 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 return? I would first calculate the cost of equity (2,000,000) and cost...

12 Nov 2010

Ok 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 is given to the creation of the Financial...

27 Aug 2009

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 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

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...

19 Jan 2013

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

Hi 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 sued by a Human RIghts Organization and why? I...

07 Dec 2012

Can 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.

12 Oct 2011

I 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 appreciated!

14 May 2010

When 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 with No Long Term Debt If a company has no...

31 Oct 2011

I'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 certain targets, but it is secured against all the assets of...

26 Jul 2012

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

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

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

There 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 unregistered private placement or are there...

28 Dec 2010

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