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WHAT MAKES YOU THINK U.S. CAPITAL IS SO EXPENSIVE?

WHAT MAKES YOU THINK U.S. CAPITAL IS SO EXPENSIVE? Footnotes 1 . Peter Dunn, “DEC'S Olsen: Capital Costs Hurting,” Electronic News (March 20, 1989), p. 1. 2 . Louis S. Richman, “How Capital Costs Cripple America,” Fortune (August 14, 1989), p. 50. 3 . Joseph Morone and Albert Paulson, “Cost of Capital: The Managerial Perspective,” California Management Review (Summer 1991), pp. 9–32. 4 . If interest rate parity holds, the expected change in the exchange rate will exactly offset the differences in nominal interest rates. 5 . In fact, a value‐weighted average debt rating for U.S. industrial companies would not even be investment grade (i.e., BBB or better). 6 . Obviously, B's true WACC could be higher than A's if, for example, its levered cost of equity exceeded 20% (likewise, it could be lower if the levered cost of equity were less than 20%). Which firm has the higher WACC depends on the optimal capital structure for these specific assets. It could be either A or B, but under normal circumstances the gap will be substantially less than 300 basis points. 7 . See Poterba, J., “International Comparisons of the Cost of Capital: A Survey of Methods, with Reference to the U.S. and Japan,” Board of Governors, http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Applied Corporate Finance Wiley

WHAT MAKES YOU THINK U.S. CAPITAL IS SO EXPENSIVE?

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References (3)

Publisher
Wiley
Copyright
Copyright © 1992 Wiley Subscription Services, Inc., A Wiley Company
ISSN
1078-1196
eISSN
1745-6622
DOI
10.1111/j.1745-6622.1992.tb00488.x
Publisher site
See Article on Publisher Site

Abstract

Footnotes 1 . Peter Dunn, “DEC'S Olsen: Capital Costs Hurting,” Electronic News (March 20, 1989), p. 1. 2 . Louis S. Richman, “How Capital Costs Cripple America,” Fortune (August 14, 1989), p. 50. 3 . Joseph Morone and Albert Paulson, “Cost of Capital: The Managerial Perspective,” California Management Review (Summer 1991), pp. 9–32. 4 . If interest rate parity holds, the expected change in the exchange rate will exactly offset the differences in nominal interest rates. 5 . In fact, a value‐weighted average debt rating for U.S. industrial companies would not even be investment grade (i.e., BBB or better). 6 . Obviously, B's true WACC could be higher than A's if, for example, its levered cost of equity exceeded 20% (likewise, it could be lower if the levered cost of equity were less than 20%). Which firm has the higher WACC depends on the optimal capital structure for these specific assets. It could be either A or B, but under normal circumstances the gap will be substantially less than 300 basis points. 7 . See Poterba, J., “International Comparisons of the Cost of Capital: A Survey of Methods, with Reference to the U.S. and Japan,” Board of Governors,

Journal

Journal of Applied Corporate FinanceWiley

Published: Jun 1, 1992

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