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Journal ArticleDOI

WACC or APV

Jaime Sabal
- 03 Jan 2008 - 
- Vol. 2, Iss: 2, pp 1-17
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TLDR
In this article, the authors proposed two alternative methodologies for project and firm valuations: the Weighted Average Cost of Capital (WACC) and the Adjusted Present Value (APV).
Abstract
Miller and Modigliani's seminal papers (1958, 1963) gave rise to two alternative methodologies for project and firm valuations: the Weighted Average Cost of Capital (WACC) and Adjusted Present Value (APV). As is often the case of many larger firms in industrialized economies, whenever a target debt ratio is set up for the long term, WACC might be a good approximation. However, APV has certain advantages making it more convenient for smaller companies with unstable debt ratios, in countries with complex tax legislation and in emerging markets where high economic uncertainty makes the leveraging decision much more opportunistic.

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Citations
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Value and capacity of tax shields: An analysis of the slicing approach

TL;DR: In this article, the authors refute Liu's main claims and restore the MM results and show that Liu's results are wrong, and claim that the slicing approach has finally resolved the issue of pricing tax shields, thereby bringing closure to the topic.
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Competitive and risk-adequate auction bids for onshore wind projects in Germany

TL;DR: In this paper, the authors present a modeling approach to determine competitive and risk-adequate auction bids for renewable energy projects, which is an improved method for quantifying marginal cost which is the minimum sales price per unit of electricity through which the investment criteria of all project stakeholders are fulfilled.
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An Empirical Analysis of Inflationary Impacts on Profitability and Value of Selected Manufacturing Firms in Nigeria

TL;DR: In this article, the authors investigated the relationship between inflation and the value of firms in the manufacturing sector of a developing economy like Nigeria and tried to discern the nature of the relationships between inflation, profitability and economic value added and return on assets.
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The Terminal Value (TV) Performing in Firm Valuation: The Gap of Literature and Research Agenda

TL;DR: In this article, the authors highlight the fragility of the evaluation models of companies that have been used by the academic community and by financial analysts, and point out lines for future research to minimize these errors.
Journal ArticleDOI

Valuation Methodologies and Emerging Markets

TL;DR: In this paper, the relationship between the WACC/APV and the capital structure is investigated, and inconsistencies in the CCF application are pointed out, and it is shown that using the framework by Fernandez (2004) does not necessarily prove Sabal's assertion.
References
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Journal ArticleDOI

Debt and taxes

TL;DR: Miller et al. as discussed by the authors presented a paper on the thirty-fiveth annual meeting of the American Finance Association, Atlantic City, New Jersey, September 16-18, 1976 (May, 1977), pp. 261-275.
Book

Financial markets and corporate strategy

TL;DR: The second European edition of the Financial Markets and Corporate Strategy provides comprehensive coverage of financial markets and corporate finance, brought to life by real world examples, cases and insights as discussed by the authors, which takes an academic and practical view to guide students through the challenges of studying and practicing finance.
Journal ArticleDOI

Capital Cash Flows: A Simple Approach to Valuing Risky Cash Flows

TL;DR: In this article, the authors presented the Capital Cash Flow method for valuing risky cash flows, which is equivalent to discounting Free Cash Flows by the weighted average cost of capital.
Journal ArticleDOI

Risk‐adjusted discount rates‐extensions from the average‐risk case

TL;DR: In this paper, the authors provide an approach for developing risk-adjusted discount rates that follows naturally from the standard presentation of the weighted average cost of capital, examining the implied assumptions about the valuation of corporate debt and showing the pedagogic advantages of the proposed approach.
Journal ArticleDOI

The Value of Tax Shields is Not Equal to the Present Value of Tax Shields

TL;DR: For constant growth companies, the value of tax shields in a world with no leverage cost is the present value of the debt, times the tax rate, and the unlevered cost of equity, discounted at the average of the two present values as discussed by the authors.
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