The Theoretical Fallacy and Valuation Bias of Existing WACC Formula

摘要：

A few simple examples reveal that existing WACC formula for valuation conflicts with the principle of values additivity.Based on the discounted cash flow method and the principle ofvalues 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.

关键词： Business valuation WACC approach Additivity of value Discounted cash flow method

作者: Wei Yi Xu Qin

作者单位: Chinese-German School for Postgraduate Studies, Tongji University, P.R.China, 200092

会议类型: 国际会议

会议名称: 第六届管理学国际会议(Proceedings of ICM2007 the 6th International on Management)

会议地点: 武汉

会议语种:英文

页码: 709-713

在线出版日期: 2007-08-03（万方平台首次上网日期，不代表论文的发表时间）