If WACC increases by 1%, what happens to your DCF value and why?

Question

IBPrep · Accepted Answer

DCF value falls when WACC rises, because the cash flows are being discounted at a higher rate and are therefore worth less in today's dollars. The magnitude depends on: (1) how much of the value sits in the terminal value, a higher TV weight means more sensitivity; (2) the length of the projection period, longer forecasts amplify the effect; (3) the spread between WACC and terminal growth, the tighter the spread, the more sensitive the terminal value.

If WACC increases by 1%, what happens to your DCF value and why?

Answer

More DCF interview questions

If WACC increases by 1%,