Home  Journals  Finance and Credit  3(435) - 2011 January

From Modigliani-Miller to general theory of capital cost and capital structure of the company

Available online: 24 January 2011

Subject Heading: Financial management

JEL Classification: 

One of the serious limitations of the Modigliani-Miller theory is the suggestion about perpetuity of the companies. We lift up this limitation and show, that the accounting of the finite lifetime of the company leads to change of the equity cost k_e, as well as of the weighted average cost of capital WACC in the presence of corporative taxes. We give a rigorous proof of the Brusov-Filatova theorem, that in the absence of corporative taxes cost of company equity, k_e, as well as its weighted average cost, WACC, does not depend on the lifetime of the company.

Keywords: perpetuitive companies, companies with finite lifetime, weighted average cost, equity cost, Modigliani-Miller theory, Brusov-Filatova theorem

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ISSN 2311-8709 (Online)
ISSN 2071-4688 (Print)

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