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I am confused as to what is meant by iterative process in type iii acquisition…
I understand that the value of the 3 cash flow streams is dependent upon the post acquisition WACC, but i can’t figure out why the value of WACC is dependent upon the cash flows…
iterative means you need to keep repeating until you get to the final answer.
The value of the 3 cash flow streams (the existing business, the acquired business and any synergy cash flows less acquisition costs) depends upon the post acquisition WACC -which can only be calculated after the value of the cash flow streams are known…
I understand that to derive at the value of the new entity, we need to discount cash flows from the 3 streams using post acquisition WACC right…?
But in the above sentence it implied that to derive at the WACC the value of the above cash flow streams need to be known first…
What is the direct relationship between those values with WACC…?
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