Difference between revisions of "CostCapme"

Latest revision as of 20:49, 24 May 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 (Financial Library.ana)

Use File → Add Library... to add this library

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 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]] ([[media:Financial Library.ana|Financial Library.ana]])
+:Use [[File menu|File]] &rarr; '''Add Library...''' to add this library
+==Example==
+:<code>Costcapme(0.14, 0.08, 0.35, 0.5) &rarr;  0.1252</code>
+==See Also==
+* [[Capm]]
+* [[CostCapmm]]
+* [[Calloption]]
+* [[media:Financial Library.ana|Financial Library.ana]]
+* [[Financial library functions]]
+* [[Financial functions]]