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Strategies & Market Trends : Gorilla and King Portfolio Candidates
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To: Stock Farmer who wrote (43552)6/16/2001 6:25:31 PM
From: EnricoPalazzo  Read Replies (2) of 54805
 
The main implication is that whether you happen to want 15% or I want 6% is irrelevant if the company's actual WACC is 12.25% To the purist at least. If unknown (and often this is the case), I guess 12% :)

Not for nothing, but I believe that WEB uses the risk-free rate, because he thinks he knows what he's doing. If I don't think there's much risk in the projects that XYZ will undertake, why should I apply a discount rate of > risk-free rate, just because other people think there's risk? Especially if XYZ isn't raising money from the capital markets?

Edit: I believe that Merlin is correct: Buffett uses the 30-year bond rate, not the risk-free rate. I assume that's because for him if he wasn't investing his money in XYZ, he'd be investing it in bonds, not T-bills.
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