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Why is WACC for ZOOM (ZM) less than that of Microsoft (MSFT)?
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I was trying to perform a DCF valuation for both Zoom and Microsoft.
The WACC for Zoom is 4.1% and Microsoft is around 8% per Bloomberg. Since Microsoft is one of only two AAA-rated companies in the USA, how is the WACC for ZOOM less than that of Microsoft?
I understand that Zoom has negative net debt (excess cash with respect to operating leases). So essentially the capital structure is 100% equity. But shouldn't Zoom's cost of equity still be greater than Microsoft's WACC?
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I agree with Cptn. I use my own models, and see this all the time. I get around it this way:
You will either need to adjust your Beta or your Re upwards due to risks not showing up in the traditional beta calculation. The risks I use... Market Cap, Future Growth Risk (hint,hint), Foreign & Governmental Risk, and Regulation Risk.
(Others will show these risks as a % chance of the firm going bankrupt, or suffering a sudden decline in business.)