Ten Badly Explained Topics in Most Corporate Finance Books
13 Pages Posted: 28 Apr 2012 Last revised: 12 Oct 2017
Date Written: November 17, 2015
This paper addresses 10 corporate finance topics that are not well treated (or not treated at all) in many Corporate Finance Books. The topics are:
1. Where the WACC equation comes from.
2. The WACC is not a cost.
3. How is the WACC equation when the value of debt is not equal to its nominal value.
4. Textbooks differ a lot on their recommendations regarding the equity premium.
5. The term equity premium is used to designate four different concepts.
6. Which Equity Premium do professors and practitioners use?
7. Calculated (historical) betas change dramatically from one day to the next.
8. Why many professors continue using calculated (historical) betas in class?
9. EVA does not measure Shareholder value creation.
10. The relationship between the WACC and the value of the tax shields (VTS).
Keywords: WACC, beta, equity premium, EVA, value of tax shields, required return to equity
JEL Classification: G12, G31, M21
Suggested Citation: Suggested Citation