Abstract

http://ssrn.com/abstract=949464
 
 

References (16)



 
 

Citations (3)



 


 



A General Formula for the WACC: A Correction


Pablo Fernandez


University of Navarra - IESE Business School

December 5, 2006


Abstract:     
This paper corrects some equations of Farber, Gillet and Szafarz (2006). The WACC is a discount rate widely used in corporate finance. However, the correct calculation of the WACC rests on a correct valuation of the tax shields. The value of tax shields depends on the debt policy of the company. Many authors, (e.g. Inselbag and Kaufold (1997), Booth (2002), Cooper and Nyborg (2006), Farber, Gillet and Szafarz (2006)) consider that debt policy may only be framed in terms of maintaining a fixed market value debt ratio (Miles-Ezzell assumption) or a fixed dollar amount of debt (Modigliani-Miller assumption).

Number of Pages in PDF File: 6

Keywords: WACC, required return to equity, value of tax shields, company valuation, APV, cost of equity

JEL Classification: G12, G31, G32

working papers series





Download This Paper

Date posted: December 5, 2006  

Suggested Citation

Fernandez, Pablo, A General Formula for the WACC: A Correction (December 5, 2006). Available at SSRN: http://ssrn.com/abstract=949464 or http://dx.doi.org/10.2139/ssrn.949464

Contact Information

Pablo Fernandez (Contact Author)
University of Navarra - IESE Business School ( email )
Camino del Cerro del Aguila 3
28023 Madrid
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)
HOME PAGE: http://web.iese.edu/PabloFernandez/
Feedback to SSRN


Paper statistics
Abstract Views: 5,362
Downloads: 1,716
Download Rank: 4,691
References:  16
Citations:  3

© 2014 Social Science Electronic Publishing, Inc. All Rights Reserved.  FAQ   Terms of Use   Privacy Policy   Copyright   Contact Us
This page was processed by apollo1 in 0.390 seconds