'The Weighted Average Cost of Capital is Not Quite Right': A Rejoinder
Posted: 4 Dec 2009
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: Suggested Citation