Arbitrage, Cost of Capital and the Miles/Ezzell-Wacc in a Three-Date Model

Finanz Betrieb, pp. 502-505, September 2002

8 Pages Posted: 20 May 2004 Last revised: 3 Jan 2011

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)

Abstract

Based on an example Loeffler claims in a recent FINANZ BETRIEB-article 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 Löffler and show that either (a) the example offers arbitrage even in the case of fully equity finance, or (b) the example violates the assumptions made by Miles/Ezzell.

Note: Downloadable document is in German.

Keywords: WACC, risk neutral valuation

JEL Classification: G31

Suggested Citation

Schwetzler, Bernhard and Rapp, Marc Steffen, Arbitrage, Cost of Capital and the Miles/Ezzell-Wacc in a Three-Date Model. Finanz Betrieb, pp. 502-505, September 2002. Available at SSRN: https://ssrn.com/abstract=520984

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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