Goldilocks and the Three WACCs

descriptionPublicationkeyboard_double_arrow_right Article , Other literature type 01 Jan 2020 English Publisher:Elsevier BVJournal:SSRN Electronic Journal (eissn: 1556-5068,

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Authors: Joseph Tham;

doi: 10.2139/ssrn.3613835

Goldilocks and the Three WACCs

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Abstract

This paper presents three different approaches for calculating the levered annual values for a finite cash flow profile. In the first approach, we use KU, the return to unlevered equity to calculate the annual tax savings and use KU to calculate the (present) value of the tax savings. In the second approach, we use KD, the cost of debt to calculate the annual tax savings and use KU to calculate the (present) value of the tax savings. In the third approach, we use KD, the cost of debt to calculate the annual tax savings and the (present) value of the tax savings.

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