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Old 05-19-2017, 02:55 AM
JoeySalads JoeySalads is offline
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Join Date: May 2017
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Default Which D/E ratio to use for WACC here?

Hey all, i'm trying to attain a debt to equity ratio to use for my WACC because I'm doing a DCF for 3 years of projections.

In the first year, the firm takes a loan for $10,000,000 and investors give it equity of $10,000,000. The second year, the firm pays back $5,000,000 of the loan. The third year the firm pays back $5,000,000 of the loan.

Using the above, I know the D/E ratios are:

Year 1: 1
Year 2: 0.5
Year 3: 0

Now, when I'm doing WACC, I already know what my cost of equity and cost of debt is, but which D/E ratio do I use to attain WACC to discount my free cash flows in year 1, year 2, year 3, and terminal value?

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