We present the derivation of cost of capital under the assumption of risky tax shields discounted with the cost of levered equity. We show that the formulation is consistent and is derived from basic financial principles. This formulation is valid for finite cash flows and non growing...

The English version of this paper can be found at 'http://ssrn.com/abstract=1655244' http://ssrn.com/abstract=1655244.Se presenta la derivación de costo de capital bajo la premisa del ahorro de impuestos de riesgo descuento con el costo de capital apalancado. Se demuestra que la formulación es...

This paper shows that a decision maker using the CAPM for valuing firms and making decisions may contradict Modigliani and Miller’s Proposition I, if he adopts the widely-accepted disequilibrium NPV. As a consequence, CAPM-minded agents employing this NPV are open to arbitrage losses and miss...

The equity premium designates four different concepts: Historical Equity Premium (HEP); Expected Equity Premium (EEP); Required Equity Premium (REP); and Implied Equity Premium (IEP).lt;brgt;lt;brgt;We highlight the confusing message of the textbooks and academic articles regarding the equity...

We calculate betas of 3,813 companies using 60 monthly returns each day of December 2001 and January 2002. lt;brgt;lt;brgt;The median of [maximum beta/minimum beta] was 3.07. lt;brgt;lt;brgt;Industry betas are also very unstable. The median (average) of the percentage daily change (in absolute...

Regulators of many countries try to find the “true” WACC of Electricity, Gas, Water… activities. All their documents have in common a main confusion: they do not differentiate among expected, required, historical, and regulator allowed returns, which are 4 very different concepts. Most of...

My answer to the question in the title is NO. It is crystal clear that CAPM and its Betas do not explain anything about expected or required returns. There are mountains of evidence to support my stance.If, for any reason, a person teaches that Beta and CAPM explain something and he knows that...

We look at the Risk-Free Rate (RF) and the Market Risk Premium (MRP) used by analysts in 2015 to value companies of six countries. The dispersion of both, the RF and the MRP used, is huge, and the most unexpected result is that the dispersion is higher for the RF than for the MRP.We also find...

I review 150 textbooks on corporate finance and valuation published between 1979 and 2009 by authors such as Brealey, Myers, Copeland, Damodaran, Merton, Ross, Bruner, Bodie, Penman, Arzac… and find that their recommendations regarding the equity premium range from 3% to 10%, and that 51 books...

The Capital Asset Pricing Model (CAPM) is theoretically incomplete in its demand-side focus, risk-averse investors, and internally inconsistent homogeneous beliefs; is not conclusively supported empirically; and yet it legitimizes a notion that investors can earn higher returns by bearing...