Goldilocks and the Three WACCs

11 Pages Posted: 23 Jun 2020

See all articles by Joseph Tham

Joseph Tham

Educational Independent Consultant

Date Written: May 29, 2020

Abstract

This paper presents three different approaches for calculating the levered annual values for a finite cash flow profile. In the first approach, we use KU, the return to unlevered equity to calculate the annual tax savings and use KU to calculate the (present) value of the tax savings. In the second approach, we use KD, the cost of debt to calculate the annual tax savings and use KU to calculate the (present) value of the tax savings. In the third approach, we use KD, the cost of debt to calculate the annual tax savings and the (present) value of the tax savings.

Keywords: Financial modeling, Valuation, Weighted Average Cost of Capital (WACC), Free Cash Flow (FCF)

JEL Classification: D61, H43, M21, M40, M46, G12, G31, G33

Suggested Citation

Tham, Joseph, Goldilocks and the Three WACCs (May 29, 2020). Available at SSRN: https://ssrn.com/abstract=3613835 or http://dx.doi.org/10.2139/ssrn.3613835

Joseph Tham (Contact Author)

Educational Independent Consultant ( email )

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