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Cost of capital is beyond our reach

Lister, RJ 2006, 'Cost of capital is beyond our reach' , Accountancy, 138 (1360) , pp. 42-43.

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Abstract

It seems churlish to discredit cost of capital when practice and theory remain loud in its praise. Tim Ogier and colleagues' Real Cost of Capital has penetrated boardrooms while Seth Armitage's Cost of Capital graces business schools worldwide. Cost of capital is no doubt significant in principle as a neat criterion for checking out the value of our equity, bonds, corporate plans and acquisition targets. The trouble is that we can't define or measure it within useful bounds. In particular: • The favoured definition - weighted average cost of capital (WACO - is impoverished. Even an extended definition may not reflect what actually matters to investors. • We can't measure the parameters of any definition with useful accuracy. • Attempts to adapt a general cost of capital to the individual company and then to individual projects merely compound basic unrealities. • If we seek wisdom in practice we find managers behaving in an untutored, inconsistent and incomplete way

Item Type: Article
Themes: Subjects / Themes > H Social Sciences > HF Commerce > HF5001 Business > HF5601 Accounting. Bookkeeping
Subjects outside of the University Themes
Schools: ?? sch_sbs ??
Journal or Publication Title: Accountancy
Publisher: Wolters Kluwer (UK) Limited
Refereed: Yes
ISSN: 0001-4664
Depositing User: H Kenna
Date Deposited: 16 Oct 2007 12:58
Last Modified: 20 Aug 2013 16:50
URI: http://usir.salford.ac.uk/id/eprint/787

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