Brusov P.N.Financial University under Government of Russian Federation, Moscow, Russian Federation pnb1983@yahoo.com
Filatova T.V.Financial University under Government of Russian Federation, Moscow, Russian Federation mfilatova@fa.ru
Orekhova N.P.Higher School of Business of Southern Federal University, Rostov-on-Don, Russian Federation fet_mir@bk.ru
Kulik V.L.Financial University under Government of Russian Federation, Moscow, Russian Federation venya.kulik@mail.ru
Importance We investigate the dependence of the cost of capital on company's lifetime at various levels of leverage and different capital values. Objectives The aim of the study is to define minimum cost of capital (WACC), depending on the level of debt financing and cost of capital (equity and borrowed funds). Methods All calculations have been done within the modern theory of cost of capital and structure of capital by Brusov - Filatova - Orekhova, which replaced the now outdated Modigliani - Miller theory, and which is applicable to companies with arbitrary lifetime. We investigate the dependence of WACC on company's lifetime at various leverage levels and various cost of equity and debt capital. Results The paper shows, for the first time, that the valuation of WACC in the Modigliani-Miller theory is not minimal, and the valuation of company's capitalization is not maximal. At some stage of company development, its WACC turns out to be lower, and company capitalization, accordingly, greater than the value under the Modigliani-Miller theory. As the 'golden age' of a company depends on the costs of capital, the control over the costs (for example, by modifying the value of dividend payments, that changes the value of equity), company management may expand this age. Conclusions We conclude that previous understanding of the results of the Modigliani - Miller theory is incorrect. We discuss the use of open effects in Russian practice, which is especially important under current economic situation.
Keywords: capital cost, company lifetime, leverage level, Brusov - Filatova - Orekhova theory, Modigliani - Miller theory
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