Valuation Methodology: A Comparison of the Weighted-Average Cost of Capital and Equity-Residual Approaches

11 Pages Posted: 12 Jun 2009

See all articles by Robert S. Harris

Robert S. Harris

University of Virginia - Darden School of Business

Abstract

This technical note compares two methods of treating debt usage in discounted-cash-flow valuation of investment projects or companies. The note illustrates that the Weighted Average Cost of Capital approach (WACC) and the Equity Residual approach (ER) yield equivalent results if consistent assumptions are used. General features are illustrated with specific examples, including a LOTUS spreadsheet.

Keywords: financing, valuation

Suggested Citation

Harris, Robert S., Valuation Methodology: A Comparison of the Weighted-Average Cost of Capital and Equity-Residual Approaches. Darden Case No. UVA-F-1007, Available at SSRN: https://ssrn.com/abstract=1418331

Robert S. Harris (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States
434-924-4823 (Phone)
434-924-4859 (Fax)

HOME PAGE: http://www.darden.virginia.edu/faculty/harris.htm

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
125
Abstract Views
857
rank
246,033
PlumX Metrics