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On the Correct Evaluation of Cost of Capital for Project Valuation

This paper fills a very important gap in the literature with a straightforward methodology that generalises the classic Modigliani and Miller results and provides correct values for the expected return on equity and for the weighted average cost of capital (WACC). After some confusing debate in the literature, we show that these correct values make the three main project valuation approaches (WACC, flow to equity and adjusted present value) match perfectly.

Author(s) :

Carlos Heitor Campani

Summary :

This paper fills a very important gap in the literature with a straightforward methodology that generalises the classic Modigliani and Miller results and provides correct values for the expected return on equity and for the weighted average cost of capital (WACC). After some confusing debate in the literature, we show that these correct values make the three main project valuation approaches (WACC, flow to equity and adjusted present value) match perfectly.

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Type : Working paper
Date : 14/12/2015
Keywords :

Corporate Finance