When we try to make a slightly finer appreciation to pull the hand out the window to see if it rains, a great way to reach a defensible result is to undertake a discount cash flows that the firm produce in coming years. "Discounting" is the moment to bring monetary profit company that believes in the future, ie the "box" pure and continues to be generated and able to repay debt providers, whether a shareholder or debtors.
The problem is what discount rate used for this exercise ... Is the interest rate? Does the CPI? Does the IRR of a company like this? ... Indeed, the most appropriate rate to discount cash flows of a company with structural debt is the weighted average cost of resources, or WACC in English. The WACC is obtained by applying to each provider of debt the rate at which it expects to be paid by the business, that is, in the case of financial institutions, the cost of debt and, in the case of shareholders and a somewhat crude, the cost these down as indispensable to enter the business ...
For example, if a company has 20 million euros in structural debt, which pays 5% interest and 30 million in capital plus reserves for which the shareholder expects a yield of 9%, similar to similar ventures that obtained in the same market, the WACC is:
9% x (30 / 50) + 5% x (20/50) = 7.4%
The WACC is the tool used by valuation professionals to calculate the capital cost of an investment or project and its use is justified when flows obtained by operating a business is financed, in most cases, both third-party debt as equity. If we were to have structural debt companies without resorting to cash flow than free cash flow discount rates and more related to the cost of equity.
Greetings!
www.NLSasesores.com
Greetings!
www.NLSasesores.com
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