An Amendment to the Note on the Cost of Debt

Glen A. Mumey

Journal of Financial and Quantitative Analysis, 1967, vol. 2, issue 2, 200-201

Abstract: Haley's line of reasoning can be reconstructed in the following way. When a borrower incurs a liability (issues a bond) he should gauge any prospective asset purchase with the proceeds against an alternative fund use, the purchase of his own bond. If the proceeds realized from the bond are B, but if the borrower would willingly pay L to be free of the obligation, L becomes a relevant variable in the asset acceptance decision. If the discounted value of any asset exceeds L, borrowing to buy it will be subjectively wealth-enhancing, whether or not the discounted value exceeds B.

Date: 1967
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