A Comparison of the Weighted-Average Cost of Capital and Equity-Residual Approaches to Valuation

Darden Business Publishing Cases

ISSN: 2474-7890

Publication date: 20 January 2017

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.

Keywords

Citation

Harris, R. (2017), "A Comparison of the Weighted-Average Cost of Capital and Equity-Residual Approaches to Valuation", Darden Business Publishing Cases. https://doi.org/10.1108/case.darden.2016.000005

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Publisher

:

University of Virginia Darden School Foundation

Copyright © 2000 by the University of Virginia Darden School Foundation, Charlottesville, VA. All rights reserved.

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