Notwithstanding purely theoretical arguments that investors should be indifferent to capital structure, in practice the relative combination of debt and equity capital utilized in calculating the weighted average cost of capital (WACC) can have a material impact on a valuation. However, valuation analysts tend to oversimplify assumptions regarding capital structure by relying solely on public guideline companies, resulting in inaccurate valuations.

 

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About the Authors

Mark B. Bober

CPA/ABV, CFF, CVA
Partner & Practice Leader, Transaction Advisory Services // Valuation Services

Steve C. Swann

CPA/ABV, CFE
Partner, Transaction Advisory Services

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