Two analysts of a company estimate/compute the WACC and get different values, what can be the...
Two analysts of a company estimate/compute the WACC and get different values, what can be the factors/reasons that cause these calculated WACC’s to be different? Assume both analysts have the same access to information about the company as stated in the annual reports.
Homework Answers
WACC could be different due to difference in calculating the cost of equity. If cost of equity is calculated as per the CAPM, then assumptions about market return and risk-free rates and beta calculations could differ. Also, if one analyst used CAPM and the other analyst used the Dividend Discount Model (DDM) for cost of equity calculation, the results would differ as assumptions have to be made about the perpetual growth rate of the company.
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