Ten Badly Explained Topics in Most Corporate Finance Books

15 Pages Posted: 7 Jun 2012

Multiple version iconThere are 2 versions of this paper

Date Written: June 6, 2012

Abstract

This paper addresses 10 corporate finance topics that are not well treated (or not treated at all) in many Corporate Finance Books. The topics are: 1. Where does the WACC equation come from? 2. The WACC is not a cost. 3. What is the WACC equation when the value of the debt is not equal to its nominal value? 4. The term equity premium is used to designate four different concepts. 5. Textbooks differ a lot on their recommendations regarding the equity premium. 6. Which Equity Premium is used by professors, analysts and practitioners? 7. Calculated (historical) betas change dramatically from one day to the next. 8. Why do many professors still use calculated (historical) betas in class? 9. EVA does not measure Shareholder value creation. 10. The relationship between the WACC and the value of the tax shields (VTS)

Keywords: WACC, beta, equity premium, EVA, value of tax shields, required return to equity

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JEL Classification: G12, G31, M21

Suggested Citation

Fernandez, Pablo, Ten Badly Explained Topics in Most Corporate Finance Books (June 6, 2012). IESE Business School Working Paper No. 954, Available at SSRN: https://ssrn.com/abstract=2079055 or http://dx.doi.org/10.2139/ssrn.2079055

Pablo Fernandez (Contact Author)

IESE Business School ( email )

Avenida Pearson 21
Barcelona, 08034
Spain
+34 91 357 0809 (Phone)
+34 91 357 2913 (Fax)

HOME PAGE: http://web.iese.edu/PabloFernandez/

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