The Correct Formula for the Return to Levered Equity (for Finite Cash Flows with Zero Growth) with Respect to the M&E Wacc

8 Pages Posted: 31 Mar 2005

See all articles by Joseph Tham

Joseph Tham

Duke University - Duke Center for International Development in the Sanford School of Public Policy; Academy of Public Administration under the President of the Republic of Kazakhstan

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation

Date Written: March 7, 2005

Abstract

In this note, we show that with respect to the Miles and Ezzell (M&E) Weighted Average Cost of Capital (WACC), the return to levered equity for finite cash flows is constant if the debt-equity ratio is constant. We assume that the reader is familiar with the M&E WACC. The expression that we derive is not new. We hope that our straightforward derivation with simple algebra makes the M&E WACC more widely known.

Keywords: M&E WACC, tax shields

JEL Classification: D61, G31, H43

Suggested Citation

Tham, Joseph and Velez-Pareja, Ignacio, The Correct Formula for the Return to Levered Equity (for Finite Cash Flows with Zero Growth) with Respect to the M&E Wacc (March 7, 2005). Available at SSRN: https://ssrn.com/abstract=680922 or http://dx.doi.org/10.2139/ssrn.680922

Joseph Tham (Contact Author)

Duke University - Duke Center for International Development in the Sanford School of Public Policy ( email )

Box 90312
302, Towerview Dr, Rubenstein Hall, Room 272
Durham, NC 27708
United States
919-613-9234 (Phone)
919-681-0831 (Fax)

HOME PAGE: http://fds.duke.edu/db/Sanford/faculty/thamjx

Academy of Public Administration under the President of the Republic of Kazakhstan ( email )

Abay Street, 33a
Astana
Kazakhstan
+7 8 7172753422 (Phone)

Ignacio Velez-Pareja

Grupo Consultor CAV Capital Advisory & Valuation ( email )

Ave Miramar # 18-93 Apt 6A
Cartagena
Colombia
+573112333074 (Phone)

HOME PAGE: http://cashflow88.com/decisiones/decisiones.html

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