A Precisely Practical Measure of the Total Cost of Debt for Determining the Optimal Capital Structure and the Weighted Average Cost of Capital

20 Pages Posted: 19 Jun 2018

See all articles by Austin Murphy

Austin Murphy

Oakland University - School of Business Administration

Date Written: June 13, 2018

Abstract

This paper develops a precise method of estimating the cost of debt to a firm that is based on standard financial theories and empirical evidence on default risk and financial distress costs. An analysis with current data on the S&P 500 demonstrates that the capital structures of large firms are consistent with the model's simple implications.

Suggested Citation

Murphy, J. Austin, A Precisely Practical Measure of the Total Cost of Debt for Determining the Optimal Capital Structure and the Weighted Average Cost of Capital (June 13, 2018). Available at SSRN: https://ssrn.com/abstract=3195367 or http://dx.doi.org/10.2139/ssrn.3195367

J. Austin Murphy (Contact Author)

Oakland University - School of Business Administration ( email )

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