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Published by: Darden Business Publishing
Originally published in: 1992
Version: 27 August 1999
Length: 10 pages
Data source: Generalised experience
Topics: Financing; Valuation

Abstract

This technical note compares two methods of treating debt usage in discounted-cash-flow valuation of investment projects or companies. The note illustrates that the Weighted Average Cost of Capital approach (WACC) and the Equity Residual approach (ER) yield equivalent results if consistent assumptions are used.

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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 illustrates that the Weighted Average Cost of Capital approach (WACC) and the Equity Residual approach (ER) yield equivalent results if consistent assumptions are used.

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