Business, Management and Accounting
4 years ago

New research recommends discarding weighted average cost of capital method

RePEc: Research Papers in Economics
A note resolving the debate on “The weighted average cost of capital is not quite rightâ€
Stephen P. Keef, Mohammed Khaled, Melvin Roush

Paper Summary

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The weighted average cost of capital method is not necessary when interest paid is not tax deductible. The required rate of return on unlevered equity can reliably estimate the net present value of any project, regardless of the analyst's beliefs about leverage. It is recommended to discard the weighted average cost of capital method in such cases.