# A Qualitatively New Effect in Corporate Finance: Abnormal Dependence of Equity Cost of Company on Leverage

## Abstract

Qualitatively new effect in corporative finance has been discovered by the authors: decreasing of equity cost *k*_{e} with leverage *L*. This effect, which is absent in perpetuity Modigliani–Miller limit, takes place on account of finite age of the company at tax on profit rate, which exceeds some value *T**.

At some ratios between debt cost and equity cost, the discovered effect takes place at tax on profit rate existing in Western countries and Russia. This provides the practical meaning of the discussed effect. Taking it into account is important for the modification of tax law and can change the dividend policy of the company.

In this chapter, the complete and detailed investigation of the discussed effect, discovered within Brusov–Filatova–Orekhova theory, has been done. It has been shown that the absence of the effect at some particular set of parameters is connected to the fact that in these cases, *T** exceeds 100% (tax on profit rate is situated in “nonfinancial” region).

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