Comment on "The weighted average cost of capital is not quite right"

Benjamin Bade

The Quarterly Review of Economics and Finance, 2009, vol. 49, issue 4, 1476-1480

Abstract: One of the most important equations in modern finance theory and practise is the WACC textbook formula accounting for the capital structure and resulting tax consequences on valuing a stream of cash flows. In the article "The weighted average cost of capital is not quite right" published in this paper by Richard A. Miller in February 2009, the correctness of this formula is questioned and so-called "nonlinear WACC" are derived. This paper shows that the statements in Miller's article are questionable themselves and that the standard WACC approach nevertheless yields correct results.

Keywords: WACC; Cost; of; capital; Discount; rate; Financial; structure; Tax; shield (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:49:y:2009:i:4:p:1476-1480

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