A community for students.
Here's the question you clicked on:
 0 viewing
dfisberg
 2 years ago
I'm having discussions here about which is the right discount rate to use when valuing a potential target. Should we use our own WACC? Or should we calculate the wacc of the target (taking into account its cost of capital and the risks associated with its cash flows)? Or should we use an "arbitrary" discount rate? (let's say our shareholders demand at least 20% of return so we use this as our discount rate)
dfisberg
 2 years ago
I'm having discussions here about which is the right discount rate to use when valuing a potential target. Should we use our own WACC? Or should we calculate the wacc of the target (taking into account its cost of capital and the risks associated with its cash flows)? Or should we use an "arbitrary" discount rate? (let's say our shareholders demand at least 20% of return so we use this as our discount rate)

This Question is Closed

arpitsrivastava1987
 2 years ago
Best ResponseYou've already chosen the best response.0Well you should calculate WACC using debt/capital ratio that reflects the desired leverage that the acquirer intends to maintain on the target's balance sheet post acquisition. In addition to this please make sure that the the target's business risk and financial risk is reflected in the cost of equity and cost of debt. Hope this helps.
Ask your own question
Sign UpFind more explanations on OpenStudy
Your question is ready. Sign up for free to start getting answers.
spraguer
(Moderator)
5
→ View Detailed Profile
is replying to Can someone tell me what button the professor is hitting...
23
 Teamwork 19 Teammate
 Problem Solving 19 Hero
 Engagement 19 Mad Hatter
 You have blocked this person.
 ✔ You're a fan Checking fan status...
Thanks for being so helpful in mathematics. If you are getting quality help, make sure you spread the word about OpenStudy.