More on the Weighted Average Cost of Capital: A Comment and Analysis

Charles M. Linke and Moon K. Kim

Journal of Financial and Quantitative Analysis, 1974, vol. 9, issue 6, 1069-1080

Abstract: The mathematical difficulties encountered when attempting to express the internal rate of return (IRR) of a combination of two or more investments as a weighted algebraic sum of the individual investments' IRRs has been recognized in the financial literature for some time. However, in a recent issue of this journal, Professors Reilly and Wecker (hereafter R-W) [3] apply the well-known mathematical impossibility of expressing the root(s) of a polynomial as an algebraic combination of the roots of related polynomials to question the validity of the weighted cost of capital (kw) concept.

Date: 1974
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