A general formula for the WACC

André Farber, Roland GILLET () and Ariane Szafarz

No 05-012.RS, Working Papers CEB from Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB)

Abstract: Recent controversies testify that the tax shield valuation remains a hot topic in the financial literature. Basically, two methods have been proposed to incorporate the tax benefit of debt in the present value computation: The adjusted present value(APV), and the classical weighted average cost of capital (WACC). This note clarifies the relationship between these two apparently different approaches by offering a general formula for the WACC. This formula encompasses earlier results obtained by Modigliani and Miller (1963) and Harris and Pringle (1985).

Keywords: WACC; APV; tax shield (search for similar items in EconPapers)
JEL-codes: G31 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn and nep-fin
Date: 2005-04
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http://www.solvay.edu/EN/Research/Bernheim/documents/wp05012.pdf First version, 2005 (application/pdf)

Related works:
Working Paper: A general formula for the WACC
Working Paper: A general formula for the WACC (2005)
Working Paper: A general formula for the WACC
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