WACC or APV?: The case of emerging markets

MM's seminal papers (1958, 1963) gave rise to two alternative methodologies for project and firm valuations: the Weighted Average Cost of Capital (WACC) and Adjusted Present Value (APV). Whenever a target debt ratio is set for the long term, as is often the case with larger firms in industrialized economies, WACC might give a good approximation. However, APV has certain features that make it more suitable for emerging markets, where high economic uncertainty makes the leveraging decision much more opportunistic and tax legislation tends not only to be quite complex but also to vary from country to country.