WACC for unlisted company

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Permalink Reply by Kofi Adusei Koduah-Sarpong on December 24, 2008 at 6:05am

Yes you may well have to de-gear/unlever the company. You will also use this approach for new company wacc estimation. This has been covered in earlier wacc posts (about 3 weeks ago) by degearing the company. You take a target company with similar characteristics, that is, target capital structure, beta, and play around with it. Look in previous posts the methodology is provided.

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Permalink Reply by Dipu James on December 25, 2008 at 2:14am

http://www.finance30.com/forum/topics/1987892:Topic:15482

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Permalink Reply by Ankur on December 30, 2008 at 6:43pm

The comparable companies obtained by you are listed companies whose levered beta is mentioned in Bloomberg or any other financial website, Use the formula
Beta unlevered=(Beta Levered)/[1+{(1-T)D/E}], determine unlevered beta of all the comparable companies and average this beta to find the "industry average" unlevered beta.
Now use this unlevered Beta in the above formula along with the values of D/E of unlisted company to find Beta levered of unlisted company.
This levered Beta of unlisted company will be applied in CAPM model to determine cost of equity in WACC model.

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Permalink Reply by mohd faraz on December 31, 2008 at 4:42am

hi
this is faraz.

i just want know that have u collected the data for the equity or the cost of equity?

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Permalink Reply by Ankit Arora on January 1, 2009 at 4:44am

There can be another solution to the calculation of Beta for the unlisted firms. Consider the 5 year quarterly data (or the maximum data one can get) of the Net Profit and compare it with the Index to find the Beta. I hope with this it does'nt matter whether the company is levered or unlevered.

If the company is a start-up then comparable is fine.

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Permalink Reply by Carmi on January 1, 2009 at 11:42am

thanks very much

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Permalink Reply by Fazil Gadzhiev on January 1, 2009 at 5:25pm

When calculating cost of equity for unlisted company don't forget to add risk premiums for illiquidity of share stake and for the size of the company. WACC for unlisted should be higher than for the listed company.

Average beta actually is the beta of the industry/sector. That's why you can take industry beta and thru the abovementioned by Ankur formula by Robert Hamada get levered beta for your company.

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Permalink Reply by Mahinda. D. N. Vito on January 2, 2009 at 2:58am

CHECK THESE FILES OUT

Attachments:

• DI0488E.pdf, 174 KB
• DI0555E.pdf, 212 KB

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