This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

A general formula for the WACC

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
André Farber () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels.)
Roland Gillet () (Université de ParisI-Panthéon-Sorbonne, Paris and Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels)
Ariane Szafarz () (Centre Emile Bernheim, Solvay Business School, Université Libre de Bruxelles, Brussels, and DULBEA, Université Libre de Bruxelles.)

Additional information is available for the following registered author(s):

Abstract

Recent controversies testify that the tax shield valuation remains a hot topic in the financial literature. Basically, two methods have been proposed to incorporate the tax benefit of debt in the present value computation: The adjusted present value(APV), and the classical weighted average cost of capital (WACC). This note clarifies the relationship between these two apparently different approaches by offering a general formula for the WACC. This formula encompasses earlier results obtained by Modigliani and Miller (1963) and Harris and Pringle (1985).

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.solvay.edu/EN/Research/Bernheim/documents/wp05012.pdf
File Format: application/pdf
File Function: First version, 2005
Download Restriction: no

Publisher Info
Paper provided by Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB) in its series Working Papers CEB with number 05-012.RS.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 12 pages
Date of creation: Apr 2005
Date of revision:
Handle: RePEc:sol:wpaper:05-012

Contact details of provider:
Postal: CP145/01, 21, avenue F.D. Roosevelt, 1050 Bruxelles
Phone: +32 (0)2 650.48.64
Fax: +32 (0)2 650.41.88
Email:
Web page: http://www.solvay.edu/EN/Research/Bernheim/index.php
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (CEB).

Related research
Keywords: WACC; APV; tax shield;

Other versions of this item:

Find related papers by JEL classification:
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Fernandez, Pablo, 2004. "The value of tax shields is NOT equal to the present value of tax shields," Journal of Financial Economics, Elsevier, vol. 73(1), pages 145-165, July. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Fernandez, Pablo, 2007. "A more realistic valuation: APV and WACC with constant book leverage ratio," IESE Research Papers D/715, IESE Business School. [Downloadable!]
  2. Fernandez, Pablo, 2006. "A general formula for the WACC: A correction," IESE Research Papers D/663, IESE Business School. [Downloadable!]
  3. André Farber & Roland Gillet & Ariane Szafarz, 2007. "A General Formula for the WACC: A Reply," Working Papers CEB 07-004.RS, Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB). [Downloadable!]
    Other versions:
Statistics
Access and download statistics

Did you know? IDEAS also covers the most complete directory of Economics departments and institutes, EDIRC.

This page was last updated on 2009-11-26.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.