A Theory of the Firm's Cost of Capital: How Debt Affects the Firm's Risk, Value, Tax Rate, and The Government's tax Claim

by Rao, Ramesh K. S.; Stevens, Eric C.

• ISBN13: 9789812569493
• ISBN10: 9812569499
• Format: Hardcover
• Copyright: 2007-03-12
• Publisher: World Scientific Pub Co Inc

Summary

The cost of capital concept is widely used in business decision-making. The current theory and estimates for measurement of cost of capital are derived from the seminal Modigliani-Miller analyses. This book generalizes this framework to include non-debt tax shields (e.g., depreciation) and default considerations. It develops several new results and shows how better cost of capital and marginal tax rate estimates can be generated. The unified cost of capital theory presented in the book is illustrated graphically and with comprehensive numerical examples. This book will be of great interest to practicing managers, academics, governmental agencies and private companies that generate cost of capital estimates for public consumption.

Table of Contents

Preface	p. v
List of Figures	p. xi
List of Tables	p. xiii
Introduction	p. 1
Model Setting	p. 5
Distributional Assumptions	p. 19
Model Solution Procedure	p. 23
Discussion of Results	p. 33
Extension to s x s States	p. 45
Numerical Illustration	p. 47
Conclusion	p. 57
	p. 63
	p. 77
References	p. 85
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