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The Correct Formula for the Return to Levered Equity (for Finite Cash Flows with Zero Growth) with Respect to the M&E WACC

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  • JOSEPH THAM
  • Ignacio Velez-Pareja

Abstract

In this note, we show that with respect to the Miles and Ezzell (M&E) Weighted Average Cost of Capital (WACC), the return to levered equity for finite cash flows is constant if the debt-equity ratio is constant. We assume that the reader is familiar with the M&E WACC. The expression that we derive is not new. We hope that our straightforward derivation with simple algebra makes the M&E WACC more widely known.

Suggested Citation

  • JOSEPH THAM & Ignacio Velez-Pareja, 2005. "The Correct Formula for the Return to Levered Equity (for Finite Cash Flows with Zero Growth) with Respect to the M&E WACC," Proyecciones Financieras y Valoración 1900, Master Consultores.
    • Handle: RePEc:col:000463:001900
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    Keywords

    M&E WACC;

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