Company Cost of Capital and Leverage: A Simplified Textbook Relationship Revisited
Abstract In this paper, we revisit a frequently employed simplification within the WACC approach that company cost of capital $$k_{V}$$ k V is supposed to be invariant to the debt ratio and therefore equal to the unlevered cost $$k_{U}$$ k U.Even though we know from Miles and Ezzell (1980) that $$k_{V}$$ k V formally differs from $$k_{U}$$ k U , tr