A general formula for the WACC

André Farber, Roland Gillet and Ariane Szafarz

No 05-012.RS, Working Papers CEB from ULB -- Universite Libre de Bruxelles

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)
Pages: 12 p.
Date: 2005-04
New Economics Papers: this item is included in nep-cfn and nep-fin
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published by: Centre Emile Bernheim, Bruxelles

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Related works:
Working Paper: A general formula for the WACC (2006)
Working Paper: A general formula for the WACC (2006)
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