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Most Downloaded Articles
- Firm Valuation with Bankruptcy Risk by Jennergren, L. Peter
- Risk-Based New Venture Valuation Technique: Win-Win for Entrepreneur and Investor by Vara, Whittington P.
- What Influences the Discount Applied to the Valuation for Controlling Interests in Private Companies? (An Analysis Based on the Acquisition Approach for Comparable Transactions of European Private and Public Target Companies) by Scheibel, Marcus and Klein, Christian
- The Valuation of Tax Loss Carryforwards by Streitferdt, Felix Georg
WACC or APV?
Citation Information: Journal of Business Valuation and Economic Loss Analysis. Volume 2, Issue 2, ISSN (Online) 1932-9156, DOI: 10.2202/1932-9156.1016, January 2008
- Published Online:
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.