On the theoretical foundation of corporate finance

被引:0
|
作者
Chen, Jing [1 ]
机构
[1] Univ Northern British Columbia, Sch Business, Prince George, BC V2N 4Z9, Canada
关键词
WACC; Modigliani and Miller theory; Asset valuation; CAPITAL STRUCTURE; MODIGLIANI; DECISIONS; TESTS; FIRMS; DEBT;
D O I
10.1016/j.strueco.2021.08.012
中图分类号
F [经济];
学科分类号
02 ;
摘要
Modigliani and Miller theory forms the theoretical foundation of corporate finance. Yet Modigliani and Miller theory was derived from a very special case of cash flows. Weighted Average Cost of Capital (WACC), which is part of the Modigliani and Miller theory, plays a fundamental role in capital struc-ture decision and asset valuation. Empirically, asset valuation calculated from cash flows discounted by WACC almost always differs from the sum of debt and equity values. We derive asset valuations for more general cashflows. Only when the debt equity ratio is constant over time, valuation by WACC is equal to the sum of debt and equity values. (C) 2021 Elsevier B.V. All rights reserved.
引用
收藏
页码:256 / 262
页数:7
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