Subject: required return to equity; value of tax shields; company valuation; cost of debt;
jel: jel:G12 | jel:G31 | jel:M21
The WACC is just the rate at which the Free Cash Flows must be discounted to obtain the same result as in the valuation using Equity Cash Flows discounted at the required return to equity (Ke) The WACC is neither a cost nor a required return: it is a weighted average of... View more
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Brealey, R.A. and S.C. Myers (2000), “Principles of Corporate Finance,” 6th edition, New York: McGraw-Hill.
Cooper, I. A. and K. G. Nyborg (2006), “The Value of Tax Shields IS Equal to the Present Value of Tax Shields,” Journal of Financial Economics, 81, pp. 215-225.
Damodaran, A. (2006), “Damodaran on Valuation,” 2nd edition, New York: John Wiley & Sons.
Farber, A., R. L. Gillet, and A. Szafarz (2006), “A General Formula for the WACC,” International Journal of Business, 11/2.
Fernández, P. (2002), “Valuation Methods and Shareholder Value Creation,” Academic Press.
Fernández, P. (2007), “A More Realistic Valuation: APV and WACC with constant book leverage ratio,” Journal of Applied Finance, Fall/Winter, Vol.17, No 2, pp. 13-20.
Fernández, P. (2009), “Valuing Companies by Cash Flow Discounting: 10 Methods and 9 Theories,” Downloadable from http://ssrn.com/abstract=256987 Harris, R.S. and J.J. Pringle (1985), “Risk-adjusted discount rates extensions from the averagerisk case,” Journal of Financial Research, 8, pp. 237-244.
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