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Effect of Capital Structure on Business Valuation Using Various DCF Methods
[Vliv kapitálové struktury na ocenění podniku různými variantami metody DCF]


  • Pavla Maříková
  • Miloš Mařík


Income valuation is a fundamental valuation approach. One question still open is the discount rate calculation. One factor impacting the discount rate is a capital structure. Nevertheless, the structure has to be in market values. It means that the knowledge of the result is a precondition for the calculation. The solution lies in an iterative technique based on recursive progress. It is also necessary to select suitable reagency functions expressing relations between equity cost and leverage ratio. The traditional reagency function is employed according to MM II, whereas the modified reagency function is derived by other authors. In addition, the article analyzes main factors impacting the size of error arising when discount rate calculation using a DCF method is not based on capital structure in market values. This analysis is made for both MM and modified reagency functions.

Suggested Citation

  • Pavla Maříková & Miloš Mařík, 2008. "Effect of Capital Structure on Business Valuation Using Various DCF Methods [Vliv kapitálové struktury na ocenění podniku různými variantami metody DCF]," Acta Oeconomica Pragensia, Prague University of Economics and Business, vol. 2008(3), pages 13-31.
  • Handle: RePEc:prg:jnlaop:v:2008:y:2008:i:3:id:91:p:13-31
    DOI: 10.18267/j.aop.91

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    References listed on IDEAS

    1. Merton H. Miller & Franco Modigliani, 1961. "Dividend Policy, Growth, and the Valuation of Shares," The Journal of Business, University of Chicago Press, vol. 34, pages 411-411.
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    More about this item


    value; Business valuation; DCF; discount rate; capital structure; equity cost; WACC;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


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