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
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: Suggested Citation