Example
A business was setup 10 years ago with an investment of 100% equity.
The owner of the business plans to sell the business now. To value the business, he has forecasted cash flows for the next 10 years but unsure of the WACC.
Does he need to value his business at 100% equity capital structure or based on industry average capital structure which could be anything?
One way could be to discont the cash-flows with the costs of equity (CoE) as per the CAPM, the unlevered beta being derived from a peer-group of comparable companies listed in the stock market.
Kind regards,
Oscar
thank you Oscar.
What if at the time selling the debt to equity ratio of the business is 30% 70% then the WACC will be based on 30% 70% or does he need to value the business on industry’s average debt to equity ratio which could be anything lets say 45%/55%?
The WACC should be ideally calculated based on the D/E-ratio of the specific company you want to value.
Cheers
Oscar
thank you Oscar. I am sure you will continue to answer my silly questions whenever asked.
Thanks once again.
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