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

See all articles by Ignacio Velez-Pareja

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Date Written: July 2, 2009

Abstract

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

Velez-Pareja, Ignacio, The Weighted Average Cost of Capital (WACC) for Firm Valuation Calculations: A Reply (July 2, 2009). Cuadernos Latinoamericanos de Administracion, Vol. VII, No. 12, pp. 31-35. Available at SSRN: https://ssrn.com/abstract=1428812 or http://dx.doi.org/10.2139/ssrn.1428812

Ignacio Velez-Pareja (Contact Author)

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

HOME PAGE: http://cashflow88.com/decisiones/decisiones.html

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