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Generalization of the Brusov–Filatova–Orekhova Theory for the Case of Variable Income

In: The Brusov–Filatova–Orekhova Theory of Capital Structure

Author

Listed:
  • Peter Brusov

    (Financial University under the Government of Russian Federation)

  • Tatiana Filatova

    (Financial University under the Government of Russian Federation)

  • Natali Orekhova

    (Financial University under the Government of Russian Federation)

Abstract

To expand the applicability in practice of the modern theory of cost and capital structure, the theory of Brusov–Filatova–Orekhova (BFO), which is valid for companies of arbitrary age, is generalized for the case of variable income. The generalized theory of capital structure can be successfully applied in corporate finance, business valuation, banking, investments, ratings, etc. income. A generalized Brusov–Filatova–Orekhova formula for the weighted average cost of capital, WACC, is derived using a formula in MS Excel, where the role of the discount rate shifts from WACC to WACC-g (here, g is the growth rate) for financially dependent companies and k0-g for financially independent companies is shown. A decrease in the real discount rates of WACC-g and k0-g with g ensures an increase in the company’s capitalization with g. The tilt of the equity cost curve, ke(L), increases with g. Since the cost of equity justifies the amount of dividends, this should change the dividend policy of the company. It turns out that for the growth rate g

Suggested Citation

  • Peter Brusov & Tatiana Filatova & Natali Orekhova, 2023. "Generalization of the Brusov–Filatova–Orekhova Theory for the Case of Variable Income," Springer Books, in: The Brusov–Filatova–Orekhova Theory of Capital Structure, chapter 0, pages 265-290, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-27929-4_14
    DOI: 10.1007/978-3-031-27929-4_14
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    2. Peter Brusov & Tatiana Filatova & Veniamin Kulik, 2023. "Two Types of Payments of Tax on Profit: Advanced Payments and at the End of Periods: Consideration within BFO Theory with Variable Profit," JRFM, MDPI, vol. 16(3), pages 1-20, March.

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