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- Title
THE COST OF CAPITAL UNDER CONDITIONS OF PERSONAL TAXES AND INFLATION.
- Authors
Rashid, M.; Amoako-Adu, Ben
- Abstract
The article focuses on the derivation of a firm's weighted average cost of capital within the framework of corporate and personal taxes and inflationary conditions. A substantial progress has been made in extending valuation models to include personal taxation and a fixed dividend policy, personal taxation and inflation, and personal taxation inflation and a fixed divided policy. The article also demonstrates the consistency of its results with previous studies by making specific assumptions about tax rates, dividend payout ratio and inflation. The realism and implications of these assumptions are also analyzed. In order to obtain the weighted average cost of capital, researchers need to separately identify the cost of equity and the cost of debt capital to the firm. While the derivation of the cost of debt capital is simple, the identification of the cost of equity capital requires a valuation model of the firm. Under specific assumptions about personal taxes, dividend payout ratio and inflation, the cost of capital in this article is seen to be consistent with several previous valuation models.
- Subjects
CAPITAL costs; CORPORATE taxes; PRICE inflation &; taxation; TAXATION of dividends; BUSINESS finance; ACCOUNTS payable
- Publication
Journal of Business Finance & Accounting, 1995, Vol 22, Issue 7, p1049
- ISSN
0306-686X
- Publication type
Article
- DOI
10.1111/j.1468-5957.1995.tb00893.x