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| Natura: | Artículo científico |
| Lingua: | en |
| Pubblicazione: |
Universidad El Bosque
2012
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| Accesso online: | https://www.redalyc.org/articulo.oa?id=409634369003 |
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Sommario:
- Weighted average cost of capital (WACC) with risky debt: a simple exposition (I) Joseph Tham Administración y Contabilidad Risky debt Cost of capital Or phrases: Multiperiod WACC Debt is rarely risk-free. Yet, on grounds of simplicity, in most discussions on the weighted average cost of capital (WACC), we assume that the debt is risk-free. At the same time, in the calculation of the WACC, we may use a value for the cost of debt d that is higher than the riskfree rate rf. In this teaching note, using simple binomial models, we examine the weighted average cost of capital (WACC) with risky debt and no taxes. Taxes raise additional complications. In a subsequent note, we analyze the case with taxes. With risky debt, we have to use the expected rate of return on the debt rather than the promised rate of return on the debt in the formula for the WACC. Furthermore, we model the expected cost of risky debt as an increasing function of the amount of debt. JEL codes D61: Cost-Benefit Analysis G31: Capital Budgeting H43: Project evaluation 2012 artículo científico 1900-5016 https://www.redalyc.org/articulo.oa?id=409634369003 en http://www.redalyc.org/revista.oa?id=4096 Cuadernos Latinoamericanos de Administración application/pdf Universidad El Bosque Cuadernos Latinoamericanos de Administración (Colombia) Num.15 Vol.VIII