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Some New Capital Budgeting Theorems

Published online by Cambridge University Press:  06 April 2009

William Beranek
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Extract

It has been shown by Haley and Schall [4], Modigliani and Miller [7], Myers [8], Solomon [10], and Vickers [12] that if (1) a firm's investments always yield cash flows that are constant forever, and if (2) the firm maintains, likewise into perpetuity, a constant debt/equity ratio in terms of market values, a constant per period cost of capital can be derived which involves as weights the market values of debt and equity. Since these sufficient conditions, which were set forth for positive purposes, pose severe limitations on the usefulness of these results for normative purposes, derivations which are less restrictive would be helpful for decision making.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 13 , Issue 5 , December 1978 , pp. 809 - 823
Copyright
Copyright © School of Business Administration, University of Washington 1978

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References

REFERENCES

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