European Business Schools Librarian's Group
IESE Research Papers,
IESE Business School
No D/715: A more realistic valuation: APV and WACC with constant book leverage ratio
Pablo Fernandez ()
Additional contact information
Pablo Fernandez: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN
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
15 pages, November 7, 2007
Full text files
DI-0715-E.pdf
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