When a firm is evaluating the purchase of a business that is unrelated to its current business, it is appropriate to use the current WACC of the firm that is purchasing the business.

Question

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When evaluating the purchase of an unrelated business, it is appropriate to calculate a new WACC that reflects the risk profile of the new business, rather than using the current WACC of the acquiring firm. This is because the risk profile of the new business may be significantly different from that of the acquiring firm's current business, and therefore a new WACC is needed to appropriately evaluate the investment opportunity.

When a Firm Is Evaluating the Purchase of a Business