The Weighted Average Cost of Capital (WACC) for Firm Valuation Calculations: A Reply
Cuadernos Latinoamericanos de Administracion, Vol. VII, No. 12, pp. 31-35
8 Pages Posted: 7 Jul 2009 Last revised: 10 Feb 2012
Date Written: July 2, 2009
Llano-Ferro (2009) proposes a solution to avoid 'significant errors' when the Weighted Average Cost of Capital (WACC) obtained by the standard formula leads to significant errors in Net Present Value of the Firm calculations; particularly in those that apply to perpetual cash flow series. In this paper we show that there are not 'significant errors' but a wrong use of the formula and improper calculations of values.
Keywords: Weighted Average Cost of Capital, WACC, firm valuation, capital budgeting, equity cost of capital
JEL Classification: G12, D61, G31, H43
Suggested Citation: Suggested Citation