'The Weighted Average Cost of Capital is Not Quite Right': A Rejoinder

Posted: 4 Dec 2009

See all articles by Axel Pierru

Axel Pierru

King Abdullah Petroleum Studies and Research Center (KAPSARC)

Date Written: December 3, 2009

Abstract

Richard Miller's reply (2008) to my comment (2008) on his claim (2007) that the standard WACC formula fails to correctly remunerate shareholders and bondholders raises crucial questions on the nature of the project's debt that he considers in his calculations. To clarify this point, I here introduce several possible definitions of a loan associated with a project, and discuss their respective relevance for a WACC calculation. In addition, Mr. Miller's suggestion that the standard WACC formula is not quite right remains unsubstantiated.

Keywords: WACC, APV, Cost of capital, Debt ratio, Cost of equity

JEL Classification: G11, G3

Suggested Citation

Pierru, Axel, 'The Weighted Average Cost of Capital is Not Quite Right': A Rejoinder (December 3, 2009). Quarterly Review of Economics and Finance, Vol. 49, No. 4, 2009, Available at SSRN: https://ssrn.com/abstract=1517686

Axel Pierru (Contact Author)

King Abdullah Petroleum Studies and Research Center (KAPSARC) ( email )

Riyadh, Central Province
Saudi Arabia

HOME PAGE: http://www.kapsarc.org/

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