The Correct Formula for the Return to Levered Equity (for Finite Cash Flows with Zero Growth) with Respect to the M&E WACC
Duke University - Duke Center for International Development in the Sanford School of Public Policy
March 7, 2005
In this note, we show that with respect to the Miles and Ezzell (M&E) Weighted Average Cost of Capital (WACC), the return to levered equity for finite cash flows is constant if the debt-equity ratio is constant. We assume that the reader is familiar with the M&E WACC. The expression that we derive is not new. We hope that our straightforward derivation with simple algebra makes the M&E WACC more widely known.
Number of Pages in PDF File: 8
Keywords: M&E WACC, tax shields
JEL Classification: D61, G31, H43working papers series
Date posted: March 31, 2005
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