Valuation theory does not specify the combined impact of both growth and the tax shield of debt on the cost of capital, the cost of equity, and systematic risk. This paper fills that gap in the literature. Our results demonstrate that the widely used Mamp;M models are inappropriate for a firm...

We provide a method for calculating the cost of equity and the cost of capital in the presence of convertible securities and employee stock options. We demonstrate how this approach can be applied if a company already has issued convertible claims or if it is considering doing so for the first...