Abstract
This article presents a general approach from which, very straightforwardly, the different methods for investment decision analysis are derived: ATWACC, Arditti—Levy, equity residual. The proposed formulation provides a general demonstration of their consistency. It also serves to establish the necessary relation between the cost of equity of an unlevered company and the weighted average cost of capital so that the Adjusted Present Value method yields the same result as the other three, with different assumptions. We produce a result that is new as far as we know: the generalization of the Modigliani—Miller equation to the case of a project of any duration.
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© 2000 Springer-Verlag Berlin Heidelberg
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Pierru, A., Babusiaux, D. (2000). A General Approach to Different Concepts of Cost of Capital. In: Bonilla, M., Casasús, T., Sala, R. (eds) Financial Modelling. Contributions to Management Science. Physica, Heidelberg. https://doi.org/10.1007/978-3-642-57652-2_23
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DOI: https://doi.org/10.1007/978-3-642-57652-2_23
Publisher Name: Physica, Heidelberg
Print ISBN: 978-3-7908-1282-4
Online ISBN: 978-3-642-57652-2
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