Miller's (2009) WACC model: An extension
AbstractMiller (2009a) presents an analysis of the weighted average cost of capital WACC model. The paper attracts debate which uses a variety of repayment schedules to support the arguments raised. We present an extension of Miller's (2009a) WACC model in a world where interest is tax deductible and debt principal is paid at maturity. We also present the corresponding model for the required rate of return on levered equity which is a vital input to the WACC model. Since these models are unwieldy, we explore an alternative definition of the WACC. These models provide insights into the debate on Miller's (2009a) paper.
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Bibliographic InfoPaper provided by Victoria University of Wellington, School of Economics and Finance in its series Working Paper Series with number 1995.
Date of creation: 2011
Date of revision:
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Postal: Alice Fong, Administrator, School of Economics and Finance, Victoria Business School, Victoria University of Wellington, PO Box 600 Wellington, New Zealand
Phone: +64 (4) 463-5353
Fax: +64 (4) 463-5014
Web page: http://www.victoria.ac.nz/sef
More information through EDIRC
WACC; Finite life; Discount rate; Tax shield; APV JEL: G31; G32;
Find related papers by JEL classification:
- APV - General Economics and Teaching - - - - -
- JEL - Labor and Demographic Economics - - - - -
- G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-02-27 (All new papers)
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