On the Applicability of WACC for Investment Decisions
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| Format: | Artículo científico |
| Sprache: | en |
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Portal Universia S.A.
2009
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| _version_ | 1876462891746459648 |
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| author | Jaime Sabal |
| author_facet | Jaime Sabal |
| contents | On the Applicability of WACC for Investment Decisions Jaime Sabal Economía y Finanzas Firm Investment Financial market Corporate finance Although WACC is appropriate for project and firm valuation, it is not a good rule for investment decision making. The reason is that by mixing up the value of the project itself with the tax shield, WACC can often turn unattractive projects into apparently acceptable ones. Real investments must be accepted only if they yield positive NPVs when discounted at the unleveraged discount rate, that is, without accounting for the tax shield. WACC enters the picture only to assess the impact of a new project on firm value, once it has been accepted, and when a fixed debt ratio policy is in place 2009 artículo científico 1988-7116 https://www.redalyc.org/articulo.oa?id=511851321005 en http://www.redalyc.org/revista.oa?id=5118 Journal of Globalization, Competitiveness & Governability / Revista de Globalización, Competitividad y Gobernabilidad / Revista de Globalização, Competitividade e Governabilidade application/pdf Portal Universia S.A. Journal of Globalization, Competitiveness & Governability / Revista de Globalización, Competitividad y Gobernabilidad / Revista de Globalização, Competitividade e Governabilidade (España) Num.2 Vol.3 |
| format | Artículo científico |
| id | redalyc_511851321005 |
| institution | Redalyc |
| language | en |
| publishDate | 2009 |
| publisher | Portal Universia S.A. |
| spellingShingle | On the Applicability of WACC for Investment Decisions Jaime Sabal Economía y Finanzas Firm Investment Financial market Corporate finance On the Applicability of WACC for Investment Decisions Jaime Sabal Economía y Finanzas Firm Investment Financial market Corporate finance Although WACC is appropriate for project and firm valuation, it is not a good rule for investment decision making. The reason is that by mixing up the value of the project itself with the tax shield, WACC can often turn unattractive projects into apparently acceptable ones. Real investments must be accepted only if they yield positive NPVs when discounted at the unleveraged discount rate, that is, without accounting for the tax shield. WACC enters the picture only to assess the impact of a new project on firm value, once it has been accepted, and when a fixed debt ratio policy is in place 2009 artículo científico 1988-7116 https://www.redalyc.org/articulo.oa?id=511851321005 en http://www.redalyc.org/revista.oa?id=5118 Journal of Globalization, Competitiveness & Governability / Revista de Globalización, Competitividad y Gobernabilidad / Revista de Globalização, Competitividade e Governabilidade application/pdf Portal Universia S.A. Journal of Globalization, Competitiveness & Governability / Revista de Globalización, Competitividad y Gobernabilidad / Revista de Globalização, Competitividade e Governabilidade (España) Num.2 Vol.3 |
| title | On the Applicability of WACC for Investment Decisions |
| topic | Economía y Finanzas Firm Investment Financial market Corporate finance |
| url | https://www.redalyc.org/articulo.oa?id=511851321005 |