This paper presents a formulation for the cost of equity, the WACC, and the value of equity and firm for growing perpetuities without circularity, using some previous results. We also derive a relationship between leverage, D%, and growth, given a value of debt at instant zero.

Accounting measures are traditionally considered not significant from an economic point of view. In particular, accounting rates of return are often regarded economically meaningless or, at the very best, poor surrogates for the IRR, which is held to be "the" economic yield. Likewise, residual...

Although we know there exists a simple approach to solve the circularity between value and the discount rate, known as the Adjusted Present Value proposed by Myers, 1974, it seems that practitioners still rely on the traditional Weighted Average Cost of Capital, WACC approach of weighting the...

Este capítulo está dedicado a la definición y aplicación del concepto del 'costo de capital' y la valoración de los flujos de caja desde diferentes puntos de vista. Se presenta un método para estimar el costo de la deuda y las formulaciones generales del costo del patrimonio y del...

This chapter is devoted to the definition and application of the cost of capital"concept to the valuation of cash flows from different points of view. We present an approach to estimate the cost of debt and general formulations for the cost of equity and the traditional weighted average cost of...

Since the Modigliani and Miller 1958 seminal paper, there has been a problem posed by the fact that the discount rate to value cash flows depends on the value of thesecash flows. This gives raise to the circularity problem.In this paper we propose an analytical solution to this circularity...

The recent notion of Average Internal Rate of Return (AIRR) [Magni 2010, The Engineering Economist, 55(2), 150-180] completely solves the long-standing problem of the internal rate of return (IRR). While the AIRR is a return measure, this paper presents a cash-flow measure, namely the ratio of...

World Bank (WB) has played a crucial role in the development of the economies of the world, especially in the emerging countries. We recognize the leadership it has shown and the intellectual authority the WB has on planning offices, practitioners and consultants. For this reason it is very...

This paper aims to provide a foundation for the notion of economic rate of return and investigate its relations with accounting rates of return. Introducing the notion of depreciation class (the set of depreciation schedules with the same aggregate book value) it is shown that the mean of the...