How to Get Correct Result from Weighted Average Cost of Capital (WACC) Formula and Avoid a Common Pitfall in Calculating WACC : An Analysis of Miller (2009) and Pierru's (2009) Articles

Calculating the cost of capital has been always a key issue in financial management. One way to calculate cost of capital is using the weighted average cost of capital (WACC) formula which has been presented by Modigliani and Miller. Recently, validity and correctness of WACC have been questioned by an article titled “The weighted average cost of capital is not quite right” (Miller, 2009), so that some researchers such as Axel Pierru and Benjamin Bade tried to revalidate and defend the correctness of WACC by their articles. In this article, at first, we criticize the Miller's article then demonstrate the weaknesses of Axel's method for proving WACC; and finally, we show the correct conclusion of WACC by employing the correct assumptions