Generalization of the Brusov–Filatova–Orekhova Theory for the Case of Variable Income

Peter Brusov, Tatiana Filatova and Natali Orekhova
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Tatiana Filatova: Financial University under the Government of Russian Federation
Natali Orekhova: Financial University under the Government of Russian Federation

Chapter Chapter 14 in The Brusov–Filatova–Orekhova Theory of Capital Structure, 2023, pp 265-290 from Springer

Abstract: Abstract To expand the applicability in practice of the modern theory of cost and capital structure, the theory of Brusov–Filatova–Orekhova (BFO), which is valid for companies of arbitrary age, is generalized for the case of variable income. The generalized theory of capital structure can be successfully applied in corporate finance, business valuation, banking, investments, ratings, etc. income. A generalized Brusov–Filatova–Orekhova formula for the weighted average cost of capital, WACC, is derived using a formula in MS Excel, where the role of the discount rate shifts from WACC to WACC-g (here, g is the growth rate) for financially dependent companies and k0-g for financially independent companies is shown. A decrease in the real discount rates of WACC-g and k0-g with g ensures an increase in the company’s capitalization with g. The tilt of the equity cost curve, ke(L), increases with g. Since the cost of equity justifies the amount of dividends, this should change the dividend policy of the company. It turns out that for the growth rate g

Keywords: Generalized Brusov–Filatova–Orekhova theory; Growth rate; Variable income; Company’s capitalization; The weighted average cost of capital; WACC; Equity cost (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-27929-4_14

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DOI: 10.1007/978-3-031-27929-4_14

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