THE WEIGHTED AVERAGE COST OF CAPITAL IN FIRMS’ EVALUATION IN BRAZIL: AN INQUIRY OF THE ACADEMIC ADHERENCE AND THE MARKET PRACTICE

Authors

  • Moisés Ferreira Cunha Universidade Federal de Goiás - UFG
  • Ednei Morais Pereira
  • Alethéia Ferreira da Cruz
  • Ilírio José Rech

Abstract

The aim of this paper is to investigate the adherence between practice and the current literature about the use of the Weighted Average Cost of Capital (WACC). To verify the market practice, an analysis on the reports of the economic and financial valuation for Initial Public Offering (IPO) purposes, available on the Comissão de Valores Mobiliários (CVM) from 2004 to 2009, has been made. From the results, the conclusion is that 79 per cent of the reports correctly applied the WACC approach as the right discount rate for the free cash flow of the firm, but only 5 per cent used the market values for the ratio of equity and debts to calculate this rate, moreover, just these reports (5 per cent) used the variable discount rate over the projected period. Also, it became evidence that in the forecast of an “optimal” capital structure in book value, the discount rate used in valuations is predominant, what goes against the current literature and showing a lack of adherence between practice and current researches.

Keywords: Firms’ evaluation; Weighted Average Cost of Capital; Initial Public Offering.

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Author Biography

Moisés Ferreira Cunha, Universidade Federal de Goiás - UFG

Doutor em Controladoria e Contabilidade pela Universidade de Sáo Paulo (USP), mestre em Ciências Contábeis pela Universidade de Brasília (UnB) e bacharel em Ciências Contábeis. Professor Adjunto na Universidade Federal de Goiás. Pesquisador na área da Controladoria e Finanças, com ênfase na linha de Finanças corporativas (Valuation).

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Published

10-09-2013

How to Cite

CUNHA, M. F.; MORAIS PEREIRA, E.; FERREIRA DA CRUZ, A.; JOSÉ RECH, I. THE WEIGHTED AVERAGE COST OF CAPITAL IN FIRMS’ EVALUATION IN BRAZIL: AN INQUIRY OF THE ACADEMIC ADHERENCE AND THE MARKET PRACTICE. REVISTA AMBIENTE CONTÁBIL - Universidade Federal do Rio Grande do Norte, [S. l.], v. 5, n. 2, p. 20–36, 2013. Disponível em: https://periodicos.ufrn.br/ambiente/article/view/4142. Acesso em: 22 jul. 2024.

Issue

Vol. 5 No. 2 (2013): Jul./Dez.

Section

ARTICLES

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