Difference between revisions of "CostCapme"

Revision as of 02:00, 2 February 2016

Function Costcapme(rOpp, rD, nTx, dvr)

Calculates Miles and Ezzell's formula for adjusting the weighted average cost of capital for financial leverage. The Miles and Ezzell formula works when the firm adjusts its future borrowing to keep debt proportions constant.

Syntax:

CostCapme(rOpp, rD, nTx, dvr: Numeric)

Parameters:

«rOpp»: the opportunity cost of capital
«rD»: the expected return on debt
«nTx»: the net tax saving per dollar of interest paid. This is difficult to pin down in practice and is usually taken as the corporate tax rate
«dvr»: the debt-to-value ratio

Function definition:

rOpp - (L*rD*Tc*(1 + rOpp)/(1 + rD))

Library

Financial library functions

Example

Costcapme(0.14, 0.08, 0.35, 0.5) → 0.1252

@@ Line 1: / Line 1: @@
+[[Category:Financial library functions]]
 [[Category:Doc Status C]] <!-- For Lumina use, do not change -->
-===Function Costcapme(rOpp,rD,nTx,dvr) ===
+==Function Costcapme(rOpp, rD, nTx, dvr) ==
 Calculates Miles and Ezzell's formula for adjusting the weighted average cost of capital for financial leverage.  The Miles and Ezzell formula works when the firm adjusts its future borrowing to keep debt proportions constant.
-; Example:
- Costcapme(0.14,0.08,0.35,0.5) &rarr;  0.1252
-; Expects: '''rOpp''', '''rD''', '''nTx''', and '''dvr''', all as numbers.
-; Parameters: '''rOpp''' is the opportunity cost of capital;<br>'''rD''' is the expected return on debt;<br>'''nTx''' is the net tax saving per dollar of interest paid. This is difficult to pin down in practice and is usually taken as the corporate tax rate;<br>'''dvr''' is the debt-to-value ratio
+[[Syntax]]:
-; Function definition: rOpp - (L * rD * Tc * (1 + rOpp)/(1 + rD))
+:[[CostCapme]](rOpp, rD, nTx, dvr: Numeric)
-;[[Syntax]]: Costcapme(rOpp,rD,nTx,dvr:Numeric)
-;Library: [[Financial library functions]]
+Parameters:
-;More Examples and Tips:  ''None yet.''
+;«rOpp»: the opportunity cost of capital
+;«rD»: the expected return on debt
+;«nTx»: the net tax saving per dollar of interest paid. This is difficult to pin down in practice and is usually taken as the corporate tax rate
+;«dvr»: the debt-to-value ratio
+Function definition:
+:<code>rOpp - (L*rD*Tc*(1 + rOpp)/(1 + rD))</code>
+==Library==
+[[Financial library functions]]
+==Example==
+:<code>Costcapme(0.14, 0.08, 0.35, 0.5) &rarr;  0.1252</code>
+==See Also==
+* [[Capm]]
+* [[CostCapmm]]
+* [[Calloption]]
+* [[Financial library functions]]
+* [[Financial functions]]