Difference between revisions of "CostCapmm"

Revision as of 19:53, 25 June 2007

Function Costcapmm(rAllEq, nTx, dvr)

Calculates Modigliani and Miller's formula for adjusting the weighted average cost of capital for financial leverage. Modigliani and Miller's formula works for any project that is expected to:

generate a level, perpetual cash-flow and
support fixed permanent debt

Example

costcapmm(0.2,0.35,0.4) → 0.172

Expects: rAllEq, nTx, dvr all to be numeric

Parameters: rAllEq is the cost of capital under all-equity financing;
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;
dvr is the debt-to-value ratio

Function definition: rAllEq * (1 - (nTx * dvr))

Syntax: Costcapmm(rAllEq, nTx, dvr : Numeric)

Library: Financial functions

More Examples and Tips: None yet.

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-[[Category:Doc Status D]] <!-- For Lumina use, do not change -->
+[[Category:Doc Status C]] <!-- For Lumina use, do not change -->
+===Function Costcapmm(rAllEq, nTx, dvr)===
+Calculates Modigliani and Miller's formula for adjusting the weighted average cost of capital for financial leverage.  Modigliani and Miller's formula works for any project that is expected to:
+#generate a level, perpetual cash-flow and
+#support fixed permanent debt
+;Example
+ costcapmm(0.2,0.35,0.4) &rarr; 0.172
+;Expects: '''rAllEq''', '''nTx''', '''dvr''' all to be numeric
+;Parameters: '''rAllEq''' is the cost of capital under all-equity financing;<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
+;Function definition: rAllEq * (1 - (nTx * dvr))
+;[[Syntax]]: Costcapmm(rAllEq, nTx, dvr : Numeric)
+;Library: [[Financial functions]]
+;More Examples and Tips:  ''None yet.''