A General Formula for the WACC: A Reply

André Farber, Roland GILLET () and Ariane Szafarz

No 07-004.RS, Working Papers CEB from Université Libre de Bruxelles, Solvay Brussels School of Economics and Management, Centre Emile Bernheim (CEB)

Abstract: Farber, Gillet and Szafarz (2006) propose a general formula for the WACC in which the expected return on the tax shield appears explicitly. The classical Modigliani-Miller and Harris-Pringle WACC formulas for specific debt policies are then derived from the general formula after having determined the corresponding tax shield expected returns. Replying to Fernandez’ (2007) comment, this note explores, in addition, the validity of the general formula in the Miles-Ezzel setup with annual adjustment of the level of debt to maintain a constant market-value debt ratio.

Keywords: WACC; value of tax shield. (search for similar items in EconPapers)
JEL-codes: G30 G32 E22 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cfn, nep-fmk and nep-mac
Date: 2007-03
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http://www.solvay.edu/EN/Research/Bernheim/documents/wp07004.pdf First version, 2007 (application/pdf)

Related works:
Working Paper: A general formula for the WACC: a reply (2007)
Working Paper: A general formula for the WACC: a reply
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