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Hello Mr Moffat,
Assuming Company A wishes to acquire Company B, through share exchange. To calculate the MV of the combined Co. for the computation of WACC, should we take
Market value of Equity:
MV of A shares + the new shares issued to acquire BMV of debt:
MV of A debt only.Cost of Debt:
Existing Co A cost of debt.Is it correct to do this, or we can just take directly the existing company A WACC
Thanks
It is difficult to give you a standard rule because it so much depends on what information you are given in the question.
It is the gearing ratio that is needed (more than the actual market values). Usually you are told what the new gearing will be, but if not then you would assume that the existing gearing of Company A was maintained and use that ratio (and as usual you should write down your assumption).
To be honest i dont know how to thank you, i really appreciate for taking all your time and effort to clear my doubts. You are just simply the amazing.
Thanks
Soud Saeed.
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