Abstract:
Miller (2009a) presents an analysis of the weighted average cost of capital WACC model. The paper attracts debate which uses a variety of repayment schedules to support the arguments raised. We present an extension of Miller's (2009a) WACC model in a world where interest is tax deductible and debt principal is paid at maturity. We also present the corresponding model for the required rate of return on levered equity which is a vital input to
the WACC model. Since these models are unwieldy, we explore an alternative definition of
the WACC. These models provide insights into the debate on Miller's (2009a) paper.
