The definition of the discount rate is fundamental in DCF – Discounted Cash Flow valuations.
WACC – Weighted Average Cost of Capital is widely used in company valuations.
WARA – Weighted Average Return on Assets is used in asset valuations (tangible and/or intangible), as it considers the specific risks of these assets.
The sum of the individual valuations of the assets using the WARA must have the same value as the valuation of the company using the WACC (principle of homogeneity).
Assets present different risks, as per the suggested table:
1. Money: risk disregarded
2. Receivables: minimal risk
3. Real estate: medium risk
4. Intangibles: diverse risk (low, medium and high)
5. Machines: high risk
The analysis of asset-specific risks is a specialized task for Mynarski.
Consult our professionals.