A Precisely Practical Measure of the Total Cost of Debt for Determining the Optimal Capital Structure and the Weighted Average Cost of Capital
Published: 2018
Author(s) Name: Austin Murphy |
Author(s) Affiliation: Professor of Finance, Department of Accounting and Finance, Oakland University, United States.
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Abstract
This paper develops a precise method of estimating the cost of debt to a firm that is based on standard financial theories and empirical evidence on default risk and financial distress costs. An analysis with current data on the S&P 500 demonstrates that the capital structures of large firms are consistent with the model’s simple implications.
Keywords: Capital Structure, Cost of Capital, Cost of Debt
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