Question
After Deutsche Bank estimated the Weighted Average Cost of Capital for Hershey, they found they had underestimated Hershey by nearly 4 percent. After reworking their
After Deutsche Bank estimated the Weighted Average Cost of Capital for Hershey, they found they had underestimated Hershey by nearly 4 percent. After reworking their discounted cash flow model, Deutsche Bank found Hersheys WACC to be 9 percent. They found this increase due to modest debt earning 6 percent and a 4.5 percent risk-free rate and a beta of .8, they found the CAPM suggested a return on investment of 9.3 percent. So after combing debt and stock in the proper weights, Deutsche Bank found the WACC of 9 percent. How does WACC impact firm value?
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