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Author: nem3sis Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1670  
Subject: Cost of capital for private company Date: 2/7/2011 5:39 AM
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Hello,

Any pointers on how to estimate the cost of capital of a firm that is not publicly traded? Obv, one method would be to use the beta of peer group and then work out the WACC. But I was interested in working out the number from the financials, if possible?

~nem3sis
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Author: jackcrow Big gold star, 5000 posts Feste Award Nominee! Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 1631 of 1670
Subject: Re: Cost of capital for private company Date: 2/7/2011 2:14 PM
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Because they are private access to the financial sheets is restricted to the company. There is no real way to grind out cost of capital using metrics derived from those sources.

If they have publicly traded debt a partial answer can be readily found. Equity tends to trade at a 3%ish premium to debt. What is still unknown is the distribution of equity to capital but you are a step closer.

Peer comparisons are the most often used methods. The closer you can get to a group of peers the better in size and business.

jack

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