Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments July 2005 erstellt
Description:
Despite many preferable aspects of the APV method, most investment banks and financial analysts still use the WACC approach when they undertake a firm valuation. In this paper we show under which assumptions the two approaches lead to the same results.We show that the use of the wacc model in a steady-growth scenario bears peculiar rigid assumptions regarding the discount rates to be used in calculating tax shields, leading to significant errors in the estimate of firms' value. We demonstrate that the widely used wacc formula, if used, as it is in most cases, in a growth context, implies that a) debt tax shield related to already existing debt are discounted using kd; b) debt tax shield related to new debt, due to company's growth, are discounted, according to a mixed procedure, using both ku and kd. We explain the inconsistency of such a discounting procedure and the preferable features of the APV approach