Business, Management and Accounting
4 years ago

New solution breaks circularity in calculating value, revolutionizing financial practices.

DOAJ (DOAJ: Directory of Open Access Journals)
There exists circularity between WACC and value? Another solution
Ignacio Vélez–Pareja, Julián Benavides-Franco

Paper Summary

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The article discusses how to break the circular relationship between the value of a company and the discount rate used to calculate it. Instead of the traditional method of using Weighted Average Cost of Capital (WACC), the researchers propose a new approach called Adjusted Present Value. By adjusting the discount rates for tax savings, they found a way to calculate the value of a company without circularity. This new method provides a solution for both single and multiple periods.