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It is a well known problem the interactions between the market value of cash flows and the discount rate (usually the weighted average cost of capital, WACC) to calculate that value. This is mentioned in almost all text books in corporate finance. However, the solution adopted by most authors is to assume a constant leverage D%, and hence assume that the leverage gives raise to an optimal capital structure and the discount rate is constant. On the other hand, most authors use the definition of the Ke, the cost of leveraged equity for perpetuities even if the planning horizon is finite. Among these authors we find the work of Wood and Leitch W&L 2004. In this article we wish to analyse the claim made by W&L 2004 in the sense to have found an iterative solution to the problem of circularity that results in a “near” matching with the Adjusted Present Value APV, proposed by Myers, 1974. They use as the basic principle the fact that there is a “near” constant relation between Ke the cost of equity and Kd the cost of debt. They consider as well that the cost of debt Kd is not constant and changes proportionately with the leverage D%. We propose a very simple and precise approach to solve the above mentioned circularity problem.

The purpose of this paper is to examine the impact of corporate social responsibility (CSR) disclosure on the firms’ weighted average cost of capital (WACC) of Jordanian industrial firms listed in the Amman Stock Exchange (ASE) over the 2009–2019 period. In particular, this paper examines whether stockholders and creditors value CSR information disclosure positively when they decide to provide financing to the firm.

To investigate the relationship between the firm's disclosure of CSR and its WACC within Jordanian industrial firms, this study used the generalized method of moments. This study first describes the variables and then the model specification. The dependent variable is the WACC, calculated as the weighted average cost of debt and the cost of equity. For the main independent variable, this study used the CSR disclosure index developed by Abu Qa'adan and Suwaidan (2019), which includes 42 items of information classified into four categories: environmental information, human resources information, community involvement information and product/services to customer information. The sample includes 42 industrial firms listed in the ASE over the period 2009–2019.

This study finds find that there is no impact of total CSR disclosure on the WACC. However, firms that do not disclose enough information and engage in socially responsible activities related to the environment and the human resources are considered high risk to the market participants (i.e. creditors and equity holders) and consequently are penalized by being charged high financing costs. Furthermore, profitable firms that engage in CSR activities are seen to be highly risky.

As the period chosen for the study is considered a period of an economic slowdown in Jordan, it is highly likely that the impact of the economic slowdown increased the required return on investment by equity holders. The results of the study are consistent with the idea that managers regard CSR as philanthropy rather than as a necessary activity that leads to the sustainability of their businesses. On the other hand, it could be that investors do not give any attention to the CSR information provided by the firm, and hence, their required return is determined by other factors.

This research contributes to the literature on CSR in the following: first, contrary to previous research that examines the impact of CSR on a firm's value or its cost of equity capital, this study will examine the effect of CSR disclosures on the company’s WACC. Second, this research examines the CSR disclosure in a small market where information asymmetry is high, thus the authors suggest that their CSR disclosure is one channel through which firms can reduce this information asymmetry and improve their performance.

The purpose of this paper is to determine the required return of intangible assets for eight different business sectors by means of an empirical study of companies from the US Standard & Poor's 500 index. The resulting required return is subsequently compared with proxies for the required return on intangible assets used in practice, such as the weighted average cost of capital (WACC).

To determine the discount rate of the intangible assets the paper applies the weighted average return on assets method (weighted average return on assets (WARA) method). The paper finds the return on intangible assets (R_IA) by setting the WARA equal to the WACC and solves the equation for R_IA.

For all the identified sectors, the R_IA is higher than the WACC. It is also shown that this return is higher than the levered or unlevered cost of equity of the company as a whole. In six of the eight sectors, the levered cost of equity appears to be the best proxy for the required return on intangible assets.

The paper shows how the required return on intangible assets can be estimated. The required return is needed for discounted cash flow valuations of intangible assets.

This paper adjusts the WARA method applied by Smith and Parr. In contrast to Smith and Parr, the tax shield is included as a separate asset in the model. Consequently, the WACC before tax is used instead of the WACC after tax.

The purpose of this study is to investigate the relationship between dominant shareholders, whose voting rights exceed cash flow rights (excess control), and firms’ cost of capital, including both equity capital and debt.

This research is conducted in Canada over a four-year period from 2002 to 2005 and uses panel data of 155 S&P/TSX firms. The weighted average cost of capital is regressed on excess control using fixed-effect regressions in a two-stage least squares framework.

The paper finds evidence that the cost of capital increases with excess control. The paper also confirms that for firms incorporated under the less protective Quebec incorporation law the excess control and, therefore, cost of capital is higher than for firms incorporated in the other provinces under the common law regime.

Prior work examined the relationship between excess control and firm value, mostly Tobin's Q. By using cost of capital, the study explores another channel through witch excess control may affect firm value.

The purpose of this study is to examine whether employee stock ownership plans (ESOPs) add or destroy value from a new perspective by examining the relation of the adoption of ESOP and the company cost of capital.

The capital asset pricing model is used to estimate the company's cost of equity capital, and the cost of debt is estimated using bond yield spreads. The weighted average cost of capital (WACC) is calculated as the weighted percentage of the firm funded by equity, preferred stock, and debt multiplied by the individual costs of capital. Univariate and multivariate analyses are conducted around the event of adoption to determine if the cost of capital changes after the adoption of ESOP.

Results from the univariate analysis show that firms adopting leveraged as well as non‐leveraged ESOP plans experience decreases in costs of equity and debt capital as well as decreases in their WACC. However, the multivariate analysis demonstrates that only the non‐leveraged common ESOPs are negatively correlated to cost of equity, cost of debt, and WACC. Robustness tests confirm that the reduction in the cost of equity capital drives the decline in WACC.

The findings contribute to the cost of capital literature and have implications for firms that decide to engage in ESOP plans. It is found that ESOPs benefit from decreased cost of capital related to the ability to increase debt capacity for the firm as well as the existing tax preferential treatments of ESOP plans.

The purpose of this paper is to show how firm financial management techniques may be used to improve over all supply chain profitability and performance.

This paper uses a case‐based approach to demonstrate how supply chain financial management techniques, such as cash‐to‐cash and shared weighted average cost of capital (WACC), can reduce the financial costs experience by a supply chain.

This paper provides a methodology to identify and quantify the potential opportunities to increase profitability throughout the supply. Scenarios are offered that illuminate potential supply chain improvements gained by collaborative management of cash‐to‐cash cycles and sharing WACC with trading partners.

These financial techniques are readily available for use in collaborative supply chain structures.

Coordinating financial management across the supply chain is a potential tool to align and improve the financial performance of collaborating firms. This method extends to the supply chain those historically firm‐centric financial management concepts such as return on capital and cash flow. The impact is reduced overall cost generated by leveraging the financial strength of the entire supply chain. During economic downturns and times of tight credit proactively managing financials across the supply chain may be the only way some suppliers remain afloat.

Two firm level financial management approaches are extended and they are adopted for use across the supply chain: cash‐to‐cash management; and leveraging a shared supply chain financing rate. This paper builds on the increasing body of research and practice that suggests trading firm‐optimized for supply chain optimized performance reduces overall cost and improves customer value.

While an operation's unlevered value is objective, the value of the debt tax shield is subjective since it depends on the capital structure policy of the firm that owns the operation. The purpose of this paper is to explore the implications of this subjective nature of debt tax shield value for corporate investment decisions.

The study develops a simple theoretical model.

The paper shows that even a low probability of selling a project in the future to a firm with a different tax shield value can significantly affect a project's weighted average cost of capital (WACC) and total value.

Managers should be aware of this issue when making corporate investment decisions.

This is the first study to address the implication of the subjective nature of debt tax shield value.

This paper aims to provide investors’ views on financing costs and barriers to entry into the electricity generation sector, with a focus on investors’ views on potential impacts on cost of capital from adopting nodal pricing and financial transmission rights (FTRs). The implications for policymakers and policy reforms are also discussed in detail.

Survey-based data collection of investors and developers in electricity generation, consisting of multiple choice questions from a closed list of discrete choices, binary-choice questions, and questions with free-text/open-ended answers.

Across survey respondents, weighted-average cost of capital (WACCs) were broadly unchanged over 2019, with increases for undiversified/non-integrated participants offset by decreases for horizontally integrated participants. Cost of equity has risen, whereas cost of debt has fallen. Nodal pricing-cum-FTRs were estimated to increase WACCs by 150–200 basis points p.a. (15–20%), reflecting concerns around the firmness of FTRs and ability to automatically access intraregional settlement residues.

These findings have energy policy implications, namely, the need to consider the interaction between economic theory and real-world financing models when designing and implementing fundamental energy sector reforms.

The need to consider implementation and transitional issues (e.g. grandfathering of existing rights, focusing on reducing the largest barriers to entry) is associated with implementing nodal pricing.

Unique set of survey questions and insights that have not previously been addressed in an Australian context; what-if analysis not previously done in an Australian context

The purpose of this paper is to present a model to value leveraged firms in the presence of default risk and bankruptcy costs under a flexible firm’s debt structure.

The authors assume that the total debt of the firm is a combination of two debt components. The first component is an active debt component which is assumed to be proportional to the firm’s value. The second one is a passive predetermined risk-free debt component. The combination of the two debt categories makes the firm’s capital structure more realistic and allows us to include flexibility into the firm’s debt structure management. The firm’s valuation is performed using the discounted cash flow technique based on the weighted average cost of capital (WACC) method.

The model can be used to define active debt management strategies that can induce the firm to deviate from its capital structure target in order to preserve debt capacity for future funding needs. The firm’s valuation is performed by using the WACC method and a closed form valuation formula is provided. Such a formula can be used to value costs and benefits of financial flexibility.

The proposed approach provides a good compromise between mathematical complexity and model capability of interpreting the various economic and financial aspects involved in the firm’s debt structure puzzle.

This model offers a realistic approach to practical applications where real financing decisions are characterized by a simultaneous use of these two debt categories. By comparing costs and benefits deriving from using unused debt capacity for future funding needs, the model provides a quantitative support to investigate if financial flexibility can add value to firms.

To the authors knowledge, the approach the authors propose is the first attempt to build a valuation scheme that accounts for firm’s financial flexibility under default risky debt and bankruptcy costs. Including financial flexibility, this model fills an important gap in the literature on this topic.