Question

Hi. In my thesis I have done 6 valuations for newly started companies. I have used Damodarans Total beta for the computer industry (cause the owners are not diversified). They alle have a WACC of approximately 23-27%. After doing the valuation, I can see that the continuing value only accounts for less than 10%, is this normal??? It is of course because the WACC is relatively high, but Damodaran says that the contiuning value often accounts for more, especially for new companies. Thanks for your help!

Answer 1

By the way.

I am referring to to the standard DCF approach, in the above question.

Also, I would just like to thank Mr. Damodaran for publishing industry betas. Your webpage was literally the only place I could get acces to this information, since I could not afford it though e.g. Ibbotson. It was a huge help, since the new ventures I am valuing are of corse not public.

Answer 2

23-27% is not high for a newly started business. In fact, most venture capitalists would accuse you of being too conservative, since they use 40-50% for startup firms.

Answer 3

Hi Aswath.

Okay, I will take your comment on WACC into consideration.

However, what I would like you to comment on is the fact that my continuing value only accounts for less than 10%. Most sources suggest that the continuing value should represent a larger part of the total value.