Revising the revisionists more on the WACC

Martin Lally

No 375005, Competition & Regulation Times from New Zealand Institute for the Study of Competition and Regulation

Abstract: In the last issue of Competition & Regulation Times, Glenn Boyle argued that a long-standing consensus over how the cost of capital (WACC) is estimated is unravelling - in particular, that the use of the CAPM is questionable because it ignores unsystematic risks, and that these risks are both relevant and significant in assessing investment projects. In the world according to Boyle, regulators who rely upon the CAPM will underestimate WACC and therefore induce under-investment in the industries that they regulate. But Martin Lally, from Victoria University's School of Economics and Finance, sees some problems in this approach.

Date: 2004-08-01
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