MARKET VALUE CALCULATION AND THE SOLUTION OF CIRCULARITY BETWEEN VALUE AND THE WEIGHTED AVERAGE COST OF CAPITAL WACC
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| Format: | Artículo científico |
| Sprache: | en |
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Universidade Presbiteriana Mackenzie
2009
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| author | IGNACIO VÉLEZ-PAREJA |
| author_facet | IGNACIO VÉLEZ-PAREJA |
| contents | MARKET VALUE CALCULATION AND THE SOLUTION OF CIRCULARITY BETWEEN VALUE AND THE WEIGHTED AVERAGE COST OF CAPITAL WACC IGNACIO VÉLEZ-PAREJA JOSEPH THAM Administración y Contabilidad Market value Market value Market value Market value Market value Most finance textbooks present the Weighted Average Cost of Capital (WACC) calculation as: WACC = Kd×(1-T)×D% + Ke×E%, where Kd is the cost of debt before taxes, T is the tax rate, D% is the percentage of debt on total value, Ke is the cost of equity and E% is the percentage of equity on total value. All of them precise (but not with enough emphasis) that the values to calculate D% y E% are market values. Although they devote special space and thought to calculate Kd and Ke, little effort is made to the correct calculation of market values. This means that there are several points that are not sufficiently dealt with: Market values, location in time, occurrence of tax payments, WACC changes in time and the circularity in calculating WACC. The purpose of this note is to clear up these ideas, solve the circularity problem and emphasize in some ideas that usually are looked over. Also, some suggestions are presented on how to calculate, or estimate, the equity cost of capital. 2009 artículo científico 1518-6776 https://www.redalyc.org/articulo.oa?id=195415661007 en http://www.redalyc.org/revista.oa?id=1954 RAM. Revista de Administração Mackenzie application/pdf Universidade Presbiteriana Mackenzie RAM. Revista de Administração Mackenzie (Brasil) Num.6 Vol.10 |
| format | Artículo científico |
| id | redalyc_195415661007 |
| institution | Redalyc |
| language | en |
| publishDate | 2009 |
| publisher | Universidade Presbiteriana Mackenzie |
| spellingShingle | MARKET VALUE CALCULATION AND THE SOLUTION OF CIRCULARITY BETWEEN VALUE AND THE WEIGHTED AVERAGE COST OF CAPITAL WACC IGNACIO VÉLEZ-PAREJA Administración y Contabilidad Market value Market value Market value Market value Market value MARKET VALUE CALCULATION AND THE SOLUTION OF CIRCULARITY BETWEEN VALUE AND THE WEIGHTED AVERAGE COST OF CAPITAL WACC IGNACIO VÉLEZ-PAREJA JOSEPH THAM Administración y Contabilidad Market value Market value Market value Market value Market value Most finance textbooks present the Weighted Average Cost of Capital (WACC) calculation as: WACC = Kd×(1-T)×D% + Ke×E%, where Kd is the cost of debt before taxes, T is the tax rate, D% is the percentage of debt on total value, Ke is the cost of equity and E% is the percentage of equity on total value. All of them precise (but not with enough emphasis) that the values to calculate D% y E% are market values. Although they devote special space and thought to calculate Kd and Ke, little effort is made to the correct calculation of market values. This means that there are several points that are not sufficiently dealt with: Market values, location in time, occurrence of tax payments, WACC changes in time and the circularity in calculating WACC. The purpose of this note is to clear up these ideas, solve the circularity problem and emphasize in some ideas that usually are looked over. Also, some suggestions are presented on how to calculate, or estimate, the equity cost of capital. 2009 artículo científico 1518-6776 https://www.redalyc.org/articulo.oa?id=195415661007 en http://www.redalyc.org/revista.oa?id=1954 RAM. Revista de Administração Mackenzie application/pdf Universidade Presbiteriana Mackenzie RAM. Revista de Administração Mackenzie (Brasil) Num.6 Vol.10 |
| title | MARKET VALUE CALCULATION AND THE SOLUTION OF CIRCULARITY BETWEEN VALUE AND THE WEIGHTED AVERAGE COST OF CAPITAL WACC |
| topic | Administración y Contabilidad Market value Market value Market value Market value Market value |
| url | https://www.redalyc.org/articulo.oa?id=195415661007 |