Quantification issues in corporate valuation, the cost of capital, and optimal capital structure. (2003–2005)
An estimate of the firm s cost of capital is probably the most important calculation required in corporate finance. It is used as the discount rate in valuation and capital budgeting decisions and forms the basis of pricing structures for many regulated industries. Corporate finance theory has identified the key inputs used to calculate the cost of capital, but the current literature falls short of precisely quantifying and measuring many of these inputs. The outcomes from this project will be a framework to quantify three key aspects of the cost of capital the value of dividend imputation tax credits, the assessment of the optimal capital structure for the firm (in particular, the quantification of bankruptcy and agency costs associated with debt financing), and the estimation of the firm s marginal tax rate.''