Ten badly explained topics in most corporate finance books
AbstractThis paper addresses 10 corporate finance topics that are not well treated (or not treated at all) in many Corporate Finance Books. The topics are: 1. Where does the WACC equation come from? 2. The WACC is not a cost. 3. What is the WACC equation when the value of the debt is not equal to its nominal value? 4. The term equity premium is used to designate four different concepts. 5. Textbooks differ a lot on their recommendations regarding the equity premium. 6. Which Equity Premium is used by professors, analysts and practitioners? 7. Calculated (historical) betas change dramatically from one day to the next. 8. Why do many professors still use calculated (historical) betas in class? 9. EVA does not measure Shareholder value creation. 10. The relationship between the WACC and the value of the tax shields (VTS)
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Bibliographic InfoPaper provided by IESE Business School in its series IESE Research Papers with number D/954.
Length: 15 pages
Date of creation: 01 May 2012
Date of revision:
equity premium; value tax shields; required return to equity; WACC;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- M21 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics - - - Business Economics
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- Christian Koziol, 2014. "A simple correction of the WACC discount rate for default risk and bankruptcy costs," Review of Quantitative Finance and Accounting, Springer, Springer, vol. 42(4), pages 653-666, May.
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