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Miller's (2009) WACC model: An extension

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  • Keef, Stephen P
  • Khaled, Mohammed S
  • Roush, Melvin L

Abstract

Miller (2009a) presents an analysis of the weighted average cost of capital WACC model. The paper attracts debate which uses a variety of repayment schedules to support the arguments raised. We present an extension of Miller's (2009a) WACC model in a world where interest is tax deductible and debt principal is paid at maturity. We also present the corresponding model for the required rate of return on levered equity which is a vital input to the WACC model. Since these models are unwieldy, we explore an alternative definition of the WACC. These models provide insights into the debate on Miller's (2009a) paper.

Suggested Citation

  • Keef, Stephen P & Khaled, Mohammed S & Roush, Melvin L, 2011. "Miller's (2009) WACC model: An extension," Working Paper Series 18608, Victoria University of Wellington, School of Economics and Finance.
    • Handle: RePEc:vuw:vuwecf:18608
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    References listed on IDEAS

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    More about this item

    Keywords

    WACC; Finite life; Discount rate; Tax shield; APV JEL: G31; G32;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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