Hi,
This is regarding evaluating the optimal capital structure for valuing a pvt co. by a public co. (Pls refer to Blue box question in the Pvt Co. Valuation Chapter - Solution 4 on Pg 441 of Main Book 4).
My question is - if the pvt co. is being acquired by a ‘public’ company, it should have as much access to the debt captial as the public company (since the pvt company will be absorbed by the latter). In such a case why should we still not treat the average optimal capital structure of public companies in the same industry as the one to be used to calculate WACC?
Agreed - if the pvt company is being valued on a ‘standalone basis’, a capital structure lower than the average optimal capital structure of public companies in the same industry should be considered.
