The Firm's Optimal Debt-Equity Combination and the Cost of Capital

William Baumol and Burton G. Malkiel

The Quarterly Journal of Economics, 1967, vol. 81, issue 4, 547-578

Abstract: I. The problem, 547. — II. Cost of capital: whose opportunity cost? 548. — III. A few formal relationships, 549. — IV. A diagrammatic approach to cost of capital, 552. — V. Transactions costs and taxes in practice, 555. — VI. A few comments on the opportunity loci, 559. — VII. Characteristics of an optimal financial structure, 561. — VIII. The real marginal cost of debt and equity, 564. — IX. A measure of the cost of capital, 567. — X. Capital as a weighted average, 569. — XI. Conclusion, 571. — Appendix A, 571. — Appendix B, 575.

Date: 1967
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