CostCapme

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

See Also

• Capm
• CostCapmm
• Calloption
• Financial Library.ana
• Financial library functions
• Financial functions