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The Firm's Optimal Debt-Equity Combination and the Cost of Capital

William J. Baumol and Burton G. Malkiel
The Quarterly Journal of Economics
Vol. 81, No. 4 (Nov., 1967), pp. 547-578
Published by: Oxford University Press
Stable URL: http://www.jstor.org/stable/1885578
Page Count: 32
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The Firm's Optimal Debt-Equity Combination and the Cost of Capital
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Abstract

I. The problem, 547.--II. Cost of capital: whose opportunity cost? 548.--III. A few formal relationships, 549.--IV. A diagrammatic approach to cost of capital, 552.--V. Transactions costs and taxes in practice, 555.--VI. A few comments on the opportunity loci, 559.--VII. Characteristics of an optimal financial structure, 561.--VIII. The real marginal cost of debt and equity, 564.--IX. A measure of the cost of capital, 567.--X. Capital as a weighted average, 569.--XI. Conclusion, 571.--Appendix A, 571.--Appendix B, 575.

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