Is APV Better than WACC for Non-Stationary Debt Ratio?

Document Type


Publication Date

Fall 2010


The WACC method is normally considered suitable for firms maintaining a constant debt ratio; while the APV method is more convenient when debt policy and tax rate are more complex. However, we show that this is incorrect in that the APV method actually requires knowledge about more variables (than the WACC method does) in order to implement accurately. On top of this, the central issue (with the APV method) regarding the discount rate for the tax shields is still an open question to a large extent, which makes the APV method evenmore unreliable.

Publisher's Statement

© 2010 Academy of Finance. Publisher's version of record: http://jofi.aof-mbaa.org/56315-jfi-v8-i2-1.585054/t-001-1.585088/a-008-1.585130/a-008-1.585131

Publication Title

Journal of Finance Issues