Subject category:
Finance, Accounting and Control
Published by:
Darden Business Publishing
Version: 25 January 2017
Revision date: 10-Feb-2017
Length: 5 pages
Data source: Published sources
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https://casecent.re/p/1353
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Abstract
This technical note compares two methods of treating debt usage in discounted-cash-flow valuation of investment projects or companies. The note demonstrates that the approach using weighted-average cost of capital (WACC) and the approach using equity residual (ER) yield equivalent results if consistent assumptions are used. General features are illustrated with specific examples, including a spreadsheet.
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Abstract
This technical note compares two methods of treating debt usage in discounted-cash-flow valuation of investment projects or companies. The note demonstrates that the approach using weighted-average cost of capital (WACC) and the approach using equity residual (ER) yield equivalent results if consistent assumptions are used. General features are illustrated with specific examples, including a spreadsheet.
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