Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
1002913 | Management Accounting Research | 2008 | 8 Pages |
Abstract
In addition to other contributions to the literature, this note shows how value created can be measured if firms are financed not only by equity, but also by debt. We deal with this capital structure using the weighted average cost of capital (WACC) approach. We show that measuring value creation with residual incomes requires the use of a modified WACC for levered firms. Thus, we caution against applying the standard definition of WACC carelessly. This insight is important for all applications in which information about the performance of past periods is needed as for post-acquisition audits, capital budgeting or bonus banks.
Related Topics
Social Sciences and Humanities
Business, Management and Accounting
Accounting
Authors
Andreas Schueler, Simon Krotter,