Discount Rate for Target

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This topic contains 2 replies, has 3 voices, and was last updated by Avatar of johnmoffat John Moffat 1 year, 7 months ago. This post has been viewed 26 times

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    AQ!
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    When we should use Acquirer WACC and Target Co’s WACC for calculating value of the company…


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    auditorzonline
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    I may be wrong – but just give a thought, based on the principle that we only use WACC when there is no change at the risk level and the gearing, that is when Bequity=Bassets….

    Obviously JM, could guide us both correctly….


    Avatar of johnmoffat
    John Moffat
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    Depending on the information available, what you would want to do is get the asset beta for the target, then calculate an equity beta for the target (the gearing depending on how the acquisition is to be financed – probably you will need to assume the gearing of the acquirer is to stay the same) and then a WACC.

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