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Business Valuation; WACC

EAC was retained to provide an updated WACC (Weighted Average Cost of Capital) calculation for an international specialty Chemical Company. After originally being awarded a contract for a purchase price allocation in 2011 we were requested to provide an updated WACC. This calculation involved examination of international equity market returns in European countries. The analysis included cost of capital from the perspective of an European company conducting business in Europe and the United States.

‣ Industry: Specialty Chemical
‣ Standard of Value: Fair Value

What is a WACC?

The WACC is a type of Cost of Capital that is determined by calculating the weighted average cost of debt (after-tax) and the cost of equity. Determining what percentage of debt/equity to use is dependent upon the purpose of the valuation. If the valuation is on a Control basis a valuator could use an optimal capitalization structure, but if on a non-control basis the valuator would use the current capitalization structure. The WACC when applied to net cash flows of invested capital provides an enterprise value in which one would subtract interest bearing debt to determine a company’s equity value.