![]() ![]() WACC or weighted average cost of capital is calculated using the cost of equity and cost of debt weighing them by respective proportions within the optimal or target capital structure of the company, i.e. When assessing the value of a company’s operation we discount free cash flows using the weighted average cost of capital (WACC). Then Asset Betas are re-levered again to test the impact of multiple debt levels (proposed capital structure) to find an optimal mix between risk, returns and debt pay down schedules. Beta, therefore, first needs to be unlevered to get to Asset Beta. Within this context, the current capital structure is not relevant to the buyer. Why do we need to relever Beta?įrom a valuation perspective in a buyout opportunity there is quite often a dramatic change in capital structure, specially within Leveraged and Management Buy outs (MBOs and LBOs). ![]() This post will look at relevering Beta in WACC (weight average cost of capital). To measure performance without the impact of capital structure, we need unlevered Beta or Asset Betas. When evaluating a business, it is important to assess underlying performance with as well as without the impact of leverage. We quite often use leverage to improve returns. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |