The theoretical fallacy and valuation bias of existing WACC formula

被引：0
|
作者：
Yi, Wei [1 ]
Qin, Xu [1 ]
机构：
[1] Tongji Univ, Chinese German Sch Postgrad Studies, Shanghai 200092, Peoples R China
来源：
GLOBALIZATION CHALLENGE AND MANAGEMENT TRANSFORMATION, VOLS I - III | 2007年
关键词：
business valuation; WACC approach; additivity of value; discounted cash flow method;
D O I：
暂无
中图分类号：
F [经济];
学科分类号：
02 ;
摘要：
A few simple examples reveal that existing WACC formula for valuation conflicts with the principle of value's additivity. Based on the discounted cash flow method and the principle of value's additivity, accurate WACC formula is derived. Comparative analysis of the two formulas suggests that only in very few cases two formulas yield the same results; under certain strong conditions, existing formula can be used as an approximate alternative for the accurate WACC formula; in most cases, existing formula may result significant positive valuation bias. After numerically analysis of the valuation bias, practical suggestion about the usage of the two formulas is presented.
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页码：709 / 713
页数：5
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