In this note, we present a simple numerical example, with a finite cash flow, to illustrate the concept of the Optimal Capital Structure (OCS). First, we assume that the discount rate for the tax benefits K_TB equals the return to unlevered equity K_U. The cost of debt K_D is a simple linear...

In this note, we comment on and discuss the weirdness and absurdity of the idea that Professor Fernandez has argued for. The weirdness or absurdity of a theory does not automatically disqualify a theory; however, perhaps another review of the implications of the theory may have some merit. It...

For cash flows in perpetuity without growth, analysts typically use the following formula for the return to levered equity Ke.lt;brgt;lt;brgt;Ke = Ku + (Ku shy; Kd)(1 shy; T)D/E (1) lt;brgt;lt;brgt;where Ku is the return to unlevered equity, Kd is the cost of debt, T is the tax rate, D is the...

La versioacute;n espantilde;ola de este artiacute;culo se puede encontrar en lt;a href='http://ssrn.com/abstract=279460'gt;http://ssrn.com/abstract=279460lt;/agt;Most finance textbooks (See Benninga and Sarig, 1997, Brealey, Myers and Marcus, 1996, Copeland, Koller and Murrin, 1994, Damodaran, 1996,...

Adopting management accounting systems are important events in the life of young and growing companies. Using a sample of 78 startup companies, we document cross-sectional differences in the adoption of operating budgets as well as seven other management accounting systems. We find that our...

Most finance textbooks (See Benninga and Sarig, 1997, Brealey, Myers and Marcus, 1996, Copeland, Koller and Murrin, 1994, Damodaran, 1996, Gallagher and Andrew, 2000, Van Horne, 1998, Weston and Copeland, 1992) present the Weighted Average Cost of Capital WACC calculation as:WACC = d(1-T)D% eE%...

Value based performance measures are intended to capture increases in shareholder wealth. At the same time they have to measure the realization of the returns initially planned for. To provide incentives for management to act in the interest of owners, bonus payments are often based on these...