A general formula for the WACC
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).
|Date of creation:||Apr 2005|
|Date of revision:|
|Publication status:||Published by: Centre Emile Bernheim, Bruxelles|
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- 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.
- Fernández , Pablo, 2002. "The value of tax shields is not equal to the present value of tax shields," IESE Research Papers D/459, IESE Business School.
- Jacques Chrissos & Roland Gillet, 2008. "Décision d'investissement," ULB Institutional Repository 2013/14363, ULB -- Universite Libre de Bruxelles.
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