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Inflation in Brusov–Filatova–Orekhova Theory and in its Perpetuity Limit – Modigliani – Miller Theory

Peter Brusov, Tatiana Filatova and Natali Orehova
Authors registered in the RePEc Author Service: Natali Orekhova

Journal of Reviews on Global Economics, 2014, vol. 3, 175-185

Abstract: In this paper the influence of inflation on capital cost and capitalization of the company within modern theory of capital cost and capital structure – Brusov–Filatova–Orekhova theory (BFO theory) (Brusov et al. 2011, 2013; Filatova et al., 2008) and within its perpetuity limit – Modigliani – Miller theory is investigated. By direct incorporation of inflation into both theories, it is shown for the first time that inflation not only increases the equity cost and the weighted average cost of capital, but as well it changes their dependence on leverage. In particular, it increases growing rate of equity cost with leverage. Capitalization of the company is decreased under accounting of inflation.

Keywords: Brusov–Filatova–Orekhova theory; Modigliani – Miller theory; inflation (search for similar items in EconPapers)
Date: 2014
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