A more realistic valuation: APV and WACC with constant book leverage ratio

Pablo Fernandez ()

No D/715, IESE Research Papers from IESE Business School

Abstract: We value a company that targets its capital structure in book-value terms. This capital structure definition provides us with a valuation that lies between those of Modigliani-Miller (fixed debt) and Miles-Ezzell (fixed market-value leverage ratio). We show that if a company targets its leverage in market-value terms, it has less value than if it targets the leverage in book-value terms. We also present empirical evidence that permits us to conclude that debt is more related to the book-value of the assets than to their market-value.

Keywords: value of tax shields; required return to equity; company valuation; cost of equity (search for similar items in EconPapers)
JEL-codes: G12 G31 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-acc and nep-cfn
Date: 2007-11-07
View list of references

Downloads: (external link)
http://www.iese.edu/research/pdfs/DI-0715-E.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:ebg:iesewp:d-0715

Access Statistics for this paper

More papers in IESE Research Papers from IESE Business School
Address: IESE Business School, Av Pearson 21, 08034 Barcelona, SPAIN
Contact information at EDIRC.
Series data maintained by Silvia Jimenez ().