HI Friends,
Can anybody tell me, how to calculate Cost of equity for WACC for an unlisted Company. ?
Regards
Mayur
4 Replies
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 30 April 2010
Hi buddy...
A. For an unlisted company, there can't be any term like "MARKET VALUE" of equity shares..
B. So, in my regards, the value of such share should be considered at FACE VALUE or else the ISSUE PRICE... Because once the shares are issued, they r unlisted and their market value does not exist..
This is my view, let any expert come and give more explaination regarding the same
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 30 April 2010
The cost of equity is calculated by the following formula:
However, there are also a variety of other ways to estimate the cost of equity. For example, using the CAPM model, the cost of equity is the product of the MARKE RISK PREMIUM and the equity's BETA plus the RISK FREE INTEREST RATE.
Mayur Khetshi Nisar
(Practice)
(139 Points)
Replied 30 April 2010
Dhiraj,
That is the issue.
How do I calculate cost of equity. viz. Market Risk Premium for a private company.
CA Dhiraj Ramchandani
(CA, M. com)
(10823 Points)
Replied 30 April 2010
What Does Market Risk Premium Mean?
The difference between the expected return on a market portfolio and the risk-free rate.
So, that means, u do have a market portfolio based on market prices.., which in case of UNLISTED COMPANIES does not exist...
So, i think the formula doesn't apply to unlisted companies altogether
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