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Cost of Capital, Cost of Equity and Value Without Circularity for Constant Growth Perpetuities

Author

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  • Felipe Mejía
  • Ignacio Velez Pareja

Abstract

This paper presents a formulation for the cost of equity, the WACC, and the value of equity and firm for growing perpetuities without circularity, using some previous results. We also derive a relationship between leverage, D%, and growth, given a value of debt at instant zero.

Suggested Citation

  • Felipe Mejía & Ignacio Velez Pareja, 2010. "Cost of Capital, Cost of Equity and Value Without Circularity for Constant Growth Perpetuities," Proyecciones Financieras y Valoración 7314, Master Consultores.
    • Handle: RePEc:col:000463:007314
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    File URL: http://ssrn.com/abstract=1659446
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    More about this item

    Keywords

    Firm Valuation; Cost of Capital; Cost of Equity; Cash Flows; Free Cash Flow; Cash Flow to Equity; Capital Cash Flow; WACC; Perpetuities; Constant Growth; Circularity;
    All these keywords.

    JEL classification:

    • M21 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics - - - Business Economics
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • M41 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Accounting
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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