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The Weighted Average Cost of Capital (WACC) for firm valuation calculations: A reply

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  • Ignacio Velez-Pareja

Abstract

Llano-Ferro (2009) proposes a solution to avoid "significant errors" when the Weighted Average Cost of Capital (WACC) "obtained by the standard formula leads to significant errors in Net Present Value of the Firm calculations; particularly in those that apply to perpetual cash flow series. In this paper we show that there are not "significant errors" but a wrong use of the formula and improper calculations of values.

Suggested Citation

  • Ignacio Velez-Pareja, 2009. "The Weighted Average Cost of Capital (WACC) for firm valuation calculations: A reply," Proyecciones Financieras y Valoración 5690, Master Consultores.
    • Handle: RePEc:col:000463:005690
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    File URL: http://ssrn.com/abstract=1428812
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    More about this item

    Keywords

    Weighted Average Cost of Capital; WACC; firm valuation; capital budgeting; equity cost of capital;
    All these keywords.

    JEL classification:

    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • H43 - Public Economics - - Publicly Provided Goods - - - Project Evaluation; Social Discount Rate

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