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W. Kester, T. Luehrman (1991)
The price of risk in the United States and JapanJapan and the World Economy, 3
A. Ando, A. Auerbach (1990)
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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 of Applied Corporate Finance – Wiley
Published: Jun 1, 1992
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