The Weighted Average Cost of Capital, Perfect Capital Markets, and Project Life: A Clarification

  title={The Weighted Average Cost of Capital, Perfect Capital Markets, and Project Life: A Clarification},
  author={James A. Miles and John R. Ezzell},
  journal={Journal of Financial and Quantitative Analysis},
  pages={719 - 730}
  • J. A. MilesJ. R. Ezzell
  • Published 1 September 1980
  • Economics, Business
  • Journal of Financial and Quantitative Analysis
For financial management to make wealth maximizing capital budgeting decisions, a model that will determine correctly the market value of a project's levered cash flows is required. A capital budgeting model should account not only for the effects of the investment decision, but also for the effects of the financing decision and the interactions between the two decisions. In perfect capital markets all the effects of the financing decision pertain to the tax shield created by debt financing… 

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