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WACC: Definition, Misconceptions, and Errors [PDF]
Business Valuation Review, 2010 Abstract The WACC is just the rate at which the Free Cash Flows must be discounted to obtain the same result as in the valuation using Equity Cash Flows discounted at the required return to equity (Ke) The WACC is neither a cost nor a required return: it is a weighted average of a cost and a required return. To refer to the WACC as the “
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SSRN Electronic Journal, 1998
In this paper we carefully analyze the assumptions of the WACC and the APV approach. Especially, we show that under mild conditions both methods do not yield the same value of the firm.
Andreas Löffler, Lutz Kruschwitz
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In this paper we carefully analyze the assumptions of the WACC and the APV approach. Especially, we show that under mild conditions both methods do not yield the same value of the firm.
Andreas Löffler, Lutz Kruschwitz
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Business Valuation Review, 2005
This article clarifies some of the issues raised by the author in an earlier article. It is also a reply to criticisms advanced by J. Morris. Regarding the controversy of book versus market-value weights, it is shown that, aside from not being grounded in proper theory, market-value weights computed through iterations are not even needed: in simple ...
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This article clarifies some of the issues raised by the author in an earlier article. It is also a reply to criticisms advanced by J. Morris. Regarding the controversy of book versus market-value weights, it is shown that, aside from not being grounded in proper theory, market-value weights computed through iterations are not even needed: in simple ...
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Growth Expectations out of WACC
SSRN Electronic Journal, 2020We reconcile the empirically flat relation between historical betas and stock returns (flat security market line) with the common usage of the CAPM based on historical betas in valuation. Analysts bias cash flow growth expectations upwards for high-beta firms, so that the value-reducing effect of higher historical systematic risk cancels out and buy ...
Petri Jylha, Michael Ungeheuer
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Goldilocks and the Three WACCs
SSRN Electronic Journal, 2020This paper presents three different approaches for calculating the levered annual values for a finite cash flow profile. In the first approach, we use KU, the return to unlevered equity to calculate the annual tax savings and use KU to calculate the (present) value of the tax savings. In the second approach, we use KD, the cost of debt to calculate the
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Applicability of the Classic WACC Concept in Practice
Latin American Business Review, 2008ABSTRACT A large percentage of companies use the discounted cash flow (DCF) approach as the primary technique for investment/project evaluation and the capital budgeting process. This approach requires forecasting the detailed cash flow of the project under evaluation and then discounting the resulting cash flow to the present value (Net Present Value ...
Mian M.A., Vélez-Pareja I.
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2018
The WACC (weighted average cost of capital) and the hurdle rate determine key input parameters for investment decisions in energy companies. The WACC is necessary to calculate the required key financial KPIs—NPV , DPI and DPP—while the hurdle rate sets the minimum return requirement a project needs to achieve in order to reach approval and to ...
Martin Schwarzbichler +2 more
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The WACC (weighted average cost of capital) and the hurdle rate determine key input parameters for investment decisions in energy companies. The WACC is necessary to calculate the required key financial KPIs—NPV , DPI and DPP—while the hurdle rate sets the minimum return requirement a project needs to achieve in order to reach approval and to ...
Martin Schwarzbichler +2 more
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Will the Deflated WACC Please Stand Up? And the Real WACC Should Sit Down
SSRN Electronic Journal, 2010In a world with taxes, there is a small discrepancy between the deflated WACC WACCDef and the real wacc. This is due to the (1-T) term that is in the standard expression for the WACC applied to the Free Cash Flow (FCF). We compare different approaches for valuing nominal and real cash flows with the 1) nominal Weighted Average Cost of Capital, WACC, 2)
Joseph Tham, Ignacio Velez-Pareja
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Application of WACC in Automobile Enterprises
Advances in Economics, Management and Political Sciences, 2023With the global promotion of energy conservation and emission reduction in recent years, some new energy vehicle enterprises are emerging in the market. To avoid potential risks in the new energy vehicle market with over-investment, the paper selects Tesla, BYD, and Toyota as examples, and uses CAPM and WACC to calculate and analyze the risks of three ...
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2013
Thus far, we have done a great deal of preparatory work. In the remaining two chapters, we will finally get to reap the rewards of all this hard work. The efforts that have gone into calculating the various pieces of the puzzle are now going to pay off as those pieces begin to come together. There are two topics covered in this chapter.
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Thus far, we have done a great deal of preparatory work. In the remaining two chapters, we will finally get to reap the rewards of all this hard work. The efforts that have gone into calculating the various pieces of the puzzle are now going to pay off as those pieces begin to come together. There are two topics covered in this chapter.
openaire +1 more source