We value a company that targets its capital structure in book-value terms. This capital structure definition provides us with a valuation that lies between those of Modigliani-Miller (fixed debt) and Miles-Ezzell (fixed market-value leverage ratio). We show that if a company targets its leverage in market-value terms, it has less value than if it targets the leverage in book-value terms. We also present empirical evidence that permits us to conclude that debt is more related to the book-value of the assets than to their market-value.
CITATION STYLE
Fernández, P. (2007). A More Realistic Valuation: Adjusted Present Value and WACC with Constant Book Leverage Ratio. Journal of Applied Finance, 3(715), 13–21.
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