Comments on Loffler's Miles - Ezzell's Wacc Yields Arbitrage
7 Pages Posted: 19 May 2004
Date Written: June 14, 2002
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
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