Effect of Capital Structure on Business Valuation Using Various DCF Methods

Vliv kapitálové struktury na ocenění podniku různými variantami metody DCF

Pavla Maříková and Miloš Mařík

Acta Oeconomica Pragensia, 2008, vol. 2008, issue 3, 13-31

Abstract: Income valuation is a fundamental valuation approach. One question still open is the discount rate calculation. One factor impacting the discount rate is a capital structure. Nevertheless, the structure has to be in market values. It means that the knowledge of the result is a precondition for the calculation. The solution lies in an iterative technique based on recursive progress. It is also necessary to select suitable reagency functions expressing relations between equity cost and leverage ratio. The traditional reagency function is employed according to MM II, whereas the modified reagency function is derived by other authors. In addition, the article analyzes main factors impacting the size of error arising when discount rate calculation using a DCF method is not based on capital structure in market values. This analysis is made for both MM and modified reagency functions.

Keywords: value; Business valuation; DCF; discount rate; capital structure; equity cost; WACC (search for similar items in EconPapers)
JEL-codes: G30 G32 (search for similar items in EconPapers)
Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://aop.vse.cz/doi/10.18267/j.aop.91.html (text/html)
http://aop.vse.cz/doi/10.18267/j.aop.91.pdf (application/pdf)
free of charge

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: https://EconPapers.repec.org/RePEc:prg:jnlaop:v:2008:y:2008:i:3:id:91:p:13-31

Ordering information: This journal article can be ordered from
Redakce Acta Oeconomica Pragensia, Vysoká škola ekonomická v Praze, nám. W. Churchilla 4, 130 67 Praha 3
http://aop.vse.cz

DOI: 10.18267/j.aop.91

Access Statistics for this article

Acta Oeconomica Pragensia is currently edited by Klára Šimůnková

More articles in Acta Oeconomica Pragensia from Prague University of Economics and Business Contact information at EDIRC.
Bibliographic data for series maintained by Stanislav Vojir ().