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WACC or APV?

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  • Sabal Jaime

    (ESADE (Spain))

Abstract

Miller and Modigliani's seminal papers (1958, 1963) gave rise to two alternative methodologies for project and firm valuations: the Weighted Average Cost of Capital (WACC) and Adjusted Present Value (APV). As is often the case of many larger firms in industrialized economies, whenever a target debt ratio is set up for the long term, WACC might be a good approximation. However, APV has certain advantages making it more convenient for smaller companies with unstable debt ratios, in countries with complex tax legislation and in emerging markets where high economic uncertainty makes the leveraging decision much more opportunistic.

Suggested Citation

  • Sabal Jaime, 2008. "WACC or APV?," Journal of Business Valuation and Economic Loss Analysis, De Gruyter, vol. 2(2), pages 1-17, January.
    • Handle: RePEc:bpj:jbvela:v:2:y:2008:i:2:n:1
    DOI: 10.2202/1932-9156.1016
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