No I don't think so. I have never understood the rationale behind using some arbitrary WACC number like 10%.
As an investor, I need to discount a companies earnings by my opportunity cost. For a conservative analysis I need to establish what my 'risk free' rate of return is.
Instead of buying Sky TV shares, I could purchase a 10 year government bond. That would virtually guarantee me a yield of 1.4% at the moment, and I am (99.99% certain) guaranteed to get my capital back after 10 years.
If some fundamental law of the universe said that cashflows for listed companies should always be discounted at, say, 10% then changes in interest rates wouldn't affect asset prices. But they do - massively!
This is how Buffett discounts earnings when valuing a company and it is the only method I have come across that makes sense to me.
No I don't think so. I have never understood the rationale...
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