Purpose – The purpose of this article is to determine the optimal use of collateral in order to maximize the borrower's wealth by reducing the interest rate payments. This analysis is to shed light on the fundamental question whether good or bad borrowers pledge more collateral....

In this paper, we revisit a frequently employed simplification within the WACC approach that company cost of capital kV is supposed to be invariant to the debt ratio and therefore equal to the unlevered cost kU . Even though we know from Miles and Ezzell (1980) that kV formally differs from kU ,...

Purpose – The purpose of this article is to determine the optimal use of collateral in order to maximize the borrower's wealth by reducing the interest rate payments. This analysis is to shed light on the fundamental question whether good or bad borrowers pledge more collateral....