On the Weighted Average Cost of Capital: Reply

Raymond R. Reilly and William E. Wecker

Journal of Financial and Quantitative Analysis, 1975, vol. 10, issue 2, 367-367

Abstract: The comment by Linke and Kim correctly observes that the assumption regarding the maintenance of constant proportional use of capital sources is not appropriate for our argument and should be deleted. As our analysis did not make use of this assumption, the two conclusions hold.1. The weighted average cost of capital calculated with the usual weights (original capital structure proportions) is not in general equal to the discount rate which equates the current value of the firm to the present value of future cash flows.2. The above conclusion holds for any weights which can be constructed from the cash flows.

Date: 1975
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