THE COST OF CAPITAL: A RECONCILIATION OF SOME EXISTING THEORIES THROUGH GENERALIZATION.
CALIFORNIA UNIV LOS ANGELES
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Several theories have been proposed in the past to evaluate the cost of capital and to show various combinations of financing modes on the overall financial structure of a company. These theories have been, in the past, considered inconsistent with one another, and at times even to be contradictory. This paper presents a generalization in this area, which for purposes of conciseness, ease of manipulation, ease of application, etc. is expressed mathematically. This generalization is then used in a deductive fashion to show the similarities and the differences of existing theories and to delineate all other possible special cases of the model presented. Furthermore, by substituting the generalized formulation for the cost of capital this paper updates a Keynesean proposition, pertaining to the cut-off point in capital investment. Author