Solved Case Analysis: A Comparison of the Weighted-Average Cost of Capital and Equity-Residual Approaches to Valuation by Robert S. Harris

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Description

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.

Publishing Authority:

Darden Business Publishing – University of Virginia

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