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AmericanEconomicAssociationTheCostofCapital,CorporationFinanceandtheTheoryofInvestmentAuthor(s):FrancoModiglianiandMertonH.MillerSource:TheAmericanEconomicReview,Vol.48,No.3(Jun.,1958),pp.261-297Publishedby:AmericanEconomicAssociationStableURL::08/04/201111:49YouruseoftheJSTORarchiveindicatesyouracceptanceofJSTOR'sTermsandConditionsofUse,availableat.://=aea..EachcopyofanypartofaJSTORtransmissionmustcontainthesamecopyrightnoticethatappearsonthescreenorprintedpageofsuchtransmission.JSTORisanot-for-profitservicethathelpsscholars,researchers,andstudentsdiscover,use,andbuilduponawiderangeofcontentinatrusteddigitalarchive.Weuseinformationtechnologyandtoolstoincreaseproductivityandfacilitatenewformsofscholarship.FormoreinformationaboutJSTOR,pleasecontactsupport@jstor.org.AmericanEconomicAssociationiscollaboratingwithJSTORtodigitize,preserveandextendaccesstoTheAmericanEconomicReview.*Whatisthecostofcapitaltoafirminaworldinwhichfundsareusedtoacquireassetswhoseyieldsareuncertain;andinwhichcapitalcanbeobtainedbymanydifferentmedia,rangingfrompuredebtinstru-ments,representingmoney-fixedclaims,topureequityissues,givingholdersonlytherighttoapro-ratashareintheuncertainventure.?Thisquestionhasvexedatleastthreeclassesofeconomists:(1)thecor-porationfinancespecialistconcernedwiththetechniquesoffinancingfirmssoastoensuretheirsurvivalandgrowth;(2)themanagerialeconomistconcernedwithcapitalbudgeting;and(3)theeconomictheoristconcernedwithexplaininginvestmentbehavioratboththemicroandmacrolevels.'Inmuchofhisformalanalysis,theeconomictheoristatleasthastendedtoside-steptheessenceofthiscost-of-capitalproblembypro-ceedingasthoughphysicalassets-likebonds-couldberegardedasyieldingknown,surestreams.Giventhisassumption,thetheoristhasconcludedthatthecostofcapitaltotheownersofafirmissimplytherateofinterestonbonds;andhasderivedthefamiliarpropositionthatthefirm,actingrationally,willtendtopushinvestmnenttothepoint*Theauthorsare,respectively,professorandassociateprofessorofeconomicsintheGrad-uateSchoolofIndustrialAdministration,CarnegieInstituteofTechnology.ThisarticleisarevisedversionofapaperdeliveredattheannualmeetingoftheEconometricSociety,Decem-ber1956.Theauthorsexpressthanksforthecommentsandsuggestionsmadeatthattimebythediscussantsofthepaper,EvseyDomar,RobertEisnerandJohnLintner,andsubse-quentlybyJ'amesDuesenberry.TheyarealsogreatlyindebtedtomanyoftheirpresentandformercolleaguesandstudentsatCarnegieTechwhoservedsooftenandwithsuchremark-ablepatienceasacriticalforumfortheideasherepresented.1Theliteraturebearingonthecost-of-capitalproblemisfartooextensiveforlistinghere.Numerousreferencestoitwillbefoundthroughoutthepaperthoughwemakenoclaimtocompleteness.Onephaseoftheproblemwhichwedonotconsiderexplicitly,butwhichhasaconsiderableliteratureofitsownistherelationbetweenthecostofcapitalandpublicutilityrates.Forarecentsummaryofthecost-of-capitaltheoryofrateregulationandabriefdis-cussionofsomeofitsimplications,thereadermayrefertoH.M.Somers[201.262THEAMERICANECONOMICREVIEWwherethemarginalyieldonphysicalassetsisequaltothemarketrateofinterest.2Thispropositioncanbeshowntofollowfromeitheroftwocriteriaofrationaldecision-makingwhichareequivalentundercertain-ty,namely(1)themaximizationofprofitsand(2)themaximizationofmarketvalue.Accordingtothefirstcriterion,aphysicalassetisworthacquiringifitwillincreasethenetprofitoftheownersofthefirm.Butnetprofitwillincreaseonlyiftheexpectedrateofreturn,oryield,oftheassetexceedstherateofinterest.Accordingtothesecondcriterion,anassetisworthacquiringifitincreasesthevalueoftheowners'equity,i.e.,ifitaddsmoretothemarketvalueofthefirmthanthecostsofacquisi-tion.Butwhattheassetaddsisgivenbycapitalizingthestreamitgen-eratesatthemarketrateofinterest,andthiscapitalizedvaluewillexceeditscostifandonlyiftheyieldoftheassetexceedstherateofinterest.Notethat,undereitherformulation,thecostofcapitalisequaltotherateofinterestonbonds,regardlessofwhetherthefundsareacquiredthroughdebtinstrumentsorthroughnewissuesofcommonstock.Indeed,inaworldofsurereturns,thedistinctionbetweendebtandequityfundsreduceslargelytooneofterminology.Itmustbeacknowledgedthatsomeattemptisusuallymadeinthistypeofanalysistoallowfortheexistenceofuncertainty.Thisattempttypicallytakestheformofsuperimposingontheresultsofthecertaintyanalysisthenotionofariskdiscounttobesubtractedfromtheex-pectedyield(orariskpremiumtobeaddedtothemarketrateofinterest
本文标题:THE COST OF CAPITAL, CORPORATION FINANCE AND THE T
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