Correct Specification of the Cost of Capital and Net Present Value

This paper reconfirms the validity of the standard textbook specification of the weighted average cost of capital and net present value. It is shown that a recent paper rejecting these specifications is in error because it fails to maintain a constant leverage ratio.

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Bibliographic Details
Published in:Financial management 1979-07, Vol.8 (2), p.15-17
Main Authors: Ezzell, John R., Porter, R. Burr
Format: Article
Language:English
Subjects:
Analysis
Average cost
Business structures
Capital costs
Capital structure
Cash flow
Debt
Debt to equity ratio
Decision analysis
Decision making
Discounted cash flow
Financial analysis
Investment
Investments
Market value
Net present value
Weighted Average Cost of Capital
Weighted averages
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Description
Summary:This paper reconfirms the validity of the standard textbook specification of the weighted average cost of capital and net present value. It is shown that a recent paper rejecting these specifications is in error because it fails to maintain a constant leverage ratio.
ISSN:0046-3892
1755-053X
DOI:10.2307/3665343