Valuations also prove useful when exploring the acquisition of another business. Studies have indicated that the majority of such transactions fail to meet the expectations of acquirers, often due to excessive purchase prices. In many cases, buyers overpay for target companies because they develop unrealistic expectations regarding incremental revenues and/or cost savings that will result from the acquisition. Frequently buyers also do not appreciate their true cost of capital: i.e., the discount rate that reflects the risk that cash flows from the acquisition will not materialize as projected. Having a professional valuation of the target company can significantly reduce your chances of disappointing returns from these transactions.