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sir how does a company’s WACC change if it acquires another company or project that is massive relative to its own valuation? I mean, unless the acquisition is accompanied by significant leverage or equity issue, how can the WACC change simply because there’s a large acquisition taking place?
There are two reason for the WACC changes. One, as you state, is a change in the level of gearing. The other is if the other company has a different level of business risk, in which case the business risk of the company after the takeover will be different. Hence a different asset beta.
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