A Multiperiod Cost of Capital Concept and its Impact on the Formulation of Financial Policy
The concept of the firm’s cost of capital (FCOC) has proved to be a useful device for both elementary and advanced teaching. In addition, it is generally held in high esteem as a powerful analytical tool for both theoretical and practical research. Theories of financial structure and FCOC generally employ a cash-flow stream of a perpetual form, which simplifies its capitalization. As seen in Table 1, when such cash flows (CFs) are conceived to be uncertain, the uncertainty involves only the level on which the perpetuities are realized.
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