European Business Schools Librarian's Group

IESE Research Papers,
IESE Business School

No D/663: A general formula for the WACC: A correction

Pablo Fernandez ()
Additional contact information
Pablo Fernandez: IESE Business School, Postal: Research Division, Av Pearson 21, 08034 Barcelona, SPAIN

Abstract: This paper corrects some of the equations of Farber, Gillet and Szafarz (2006). The WACC is a discount rate widely used in corporate finance. However, correctly calculating the WACC involves properly calculating the value of tax shields, and the value of tax shields depends on the company's debt policy. Many authors [e.g. Inselbag and Kaufold (1997), Booth (2002), Cooper and Nyborg (2006), Farber, Gillet and Szafarz (2006)] have stated that debt policy can only be implemented by maintaining a fixed market-value debt ratio (Miles-Ezzell's assumption) or a fixed dollar amount of debt (Modigliani-Miller's assumption).

Keywords: required return to equity; value of tax shields; company valuation; cost of equity

JEL-codes: G12; G31; G32

7 pages, December 16, 2006

Full text files 

DI-0663-E.pdf PDF-file

Download statistics

Questions (including download problems) about the papers in this series should be directed to Noelia Romero ()
Report other problems with accessing this service to Sune Karlsson ().

RePEc:ebg:iesewp:d-0663This page generated on 2024-09-13 22:20:02.