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Flotation Costs and the Weighted Average Cost of Capital

Published online by Cambridge University Press:  19 October 2009

John R. Ezzell  and
R. Burr Porter
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Extract

The weighted average cost of capital (Ko) is presented in virtually all textbooks in financial management and capital budgeting as a practical concept fundamental to the actual selection of optimal financial and investment alternatives. As often employed Ko can be defined as

where

Ko = the weighted average cost of capital,

Ks = the cost of equity capital,

Kb = the cost of debt capital,

S = the market value of the firm's equity,

B = the market value of the firm's debt, and

V = S + B, the total market value of the firm.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 11 , Issue 3 , September 1976 , pp. 403 - 413
Copyright
Copyright © School of Business Administration, University of Washington 1976

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References

REFERENCES

[1]Bierman, Harold, and Smidt, Seymour. The Capital Budgeting Decision, 3rd ed.New York: MacMilland and Co., 1971.Google Scholar
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