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Hey Kevin,

Thanks for the well thought out response. Yeah, CAPM makes my head hurt too, especially since beta's such a flawed concept.

The bottom line (at least according to Damodaran) is that if you were to buy the entire company outright today, you'd have to pay market value for equity regardless of what shareholder equity on the balance sheet is. So, despite the convincing arguments above, you have to use market value of equity to determine intrinsic value.

Hmm, I've heard that circular argument, but that sounds completely nonsensical to me. If I want to buy the whole company today, I have to pay X ... so, therefore, it must be *worth* X. Extrapolate that down to the per share level, and you have momentum investing :) Perhaps one wouldn't buy the company outright at today's price ... because it's overvalued.

I definitely get just using say, 11.5%, for a hurdle rate, and skipping the whole painful process. Perhaps I'm missing something, but while that seems to be sensible enough for a DCF cost-of-capital discount rate input, it seems to miss the point for my intended usage (which was only implicit in my earlier post).

I'm trying to get the cost of capital, so I can ding the company's NOPAT (or similar), implying that the capital they're using isn't free. And what I thought was nice about all this WACC business is that it would generate a different "interest rate" for their use of capital depending on the capital structure. So encouraging the company, if you will, to find the sweet spot of equity to debt that returns the greatest value.

By just plugging in a standard "hurdle rate" -- as in, I want at least this return to feel like I haven't wasted my time, considering the risk -- I've removed the whole capital structure nuance, and in theory the company should just take on lots more debt to increase their ROE, etc, because there's no penalty.

I'm not clear if I'm missing something, and should be happy with a hurdle rate for both usages, if I'm happy with it for DCF.

Best,
-joe
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