Comments on Loffler's Miles - Ezzell's Wacc Yields Arbitrage

7 Pages Posted: 19 May 2004

See all articles by Bernhard Schwetzler

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance

Marc Steffen Rapp

University of Marburg - School of Business & Economics; University of Marburg - Marburg Centre for Institutional Economics (MACIE)

Date Written: June 14, 2002

Abstract

Based on an example Loffler claims in his recent paper "Miles-Ezzell's WACC Approach Yields Arbitrage", that the application of the Miles/Ezzell-WACC may offer arbitrage opportunities. He concludes that the Miles/Ezzell-WACC is not applicable without restrictions. We discuss the example of Loffler and show that not the application of the Miles/Ezzell-WACC but the assumption of a constant cost of capital in the fully equity finance case yields to the arbitrage opportunity.

Note: The Downloadable document is in German.

Keywords: WACC, risk neutral valuation

Suggested Citation

Schwetzler, Bernhard and Rapp, Marc Steffen, Comments on Loffler's Miles - Ezzell's Wacc Yields Arbitrage (June 14, 2002). Available at SSRN: https://ssrn.com/abstract=520942 or http://dx.doi.org/10.2139/ssrn.520942

Bernhard Schwetzler

HHL Leipzig Graduate School of Management - Department of Finance ( email )

Jahnallee 59
D-04109 Leipzig
Germany
+49-341-9851-685 (Phone)
+49-341-9851-689 (Fax)

Marc Steffen Rapp (Contact Author)

University of Marburg - School of Business & Economics ( email )

Am Plan 2
Marburg, D-35037
Germany

University of Marburg - Marburg Centre for Institutional Economics (MACIE) ( email )

Am Plan
Marburg, 35032
Germany

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