Three Ways to Present the Marginal Cost of Capital

Arditti, Fred D.; Tysseland, Milford Selner

doi:10.2307/3665484

Financial Management

1973

DOI: 10.2307/3665484

|View full text |Cite

Three Ways to Present the Marginal Cost of Capital

Fred D. Arditti¹,

Milford Selner Tysseland²

Help me understand this report

Search citation statements

Order By: Relevance

Paper Sections

Select...

Citation Types

Supporting

Mentioning

Contrasting

Year Published

1989

1999

Publication Types

Select...

Article2

Relationship

Self Cite0

Independent2

Authors

Journals

Cited by 2 publications

(1 citation statement)

References 8 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…After the derivation has been provided, some numerical examples are given.Portions of these examples point out some of the problems a practitioner could encounter in employing certain ad & applications instead of the approach suggested here 1. …”

mentioning

confidence: 95%

Operating Leverage in Cost Reduction Capital Budgeting Proposals: A Rigorous and Practical Approach

O’Brien

1989

The Engineering Economist

View full text Add to dashboard Cite

This paper presents a method for integrating the operating leverage concept into cost reduction capital budgeting decisions. The method is rigorous, since it is derived from a market-risk, asset-pricing theory. At the same time, the model is practical, since the risk measure "drops out" of the derivation and therefore does not need to be defined or measured for application. I. INTRODUCTIONThe purpose of this paper is to show a simple way to incorporate operating leverage into capital budgeting proposals that will reduce operating costs. Despite the fact that many well-regarded textbooks introduce the topic of operating leverage, these texts do not demonstrate how to integrate this concept into capital budgeting proposals for costreducing technological changes. Presumably, students are expected to perform this application on their own when they become practitioners.At first glance, it might seem that the task would involve measuring the "new1' operating leverage assuming the proposal is adopted, relating this measure t o some specification of risk, and relating t h s risk to the cost of capital. While the idea of this approach is readily grasped, practitioners might not implement the approach, because of the difficulties in choosing and estimating the "appropriate" measure of risk. Moreover, the attempts of practitioners at implementation will probably involve some ad hoc procedures, especially if the proper steps are not spelled out in texts. The methodology offered in this paper circumvents these problems.In fact, the methodology suggested in this paper offers the best of two worlds. First, the application of the technique involves no specification of risk and thus is very easy to

show abstract

mentioning

confidence: 95%

Operating Leverage in Cost Reduction Capital Budgeting Proposals: A Rigorous and Practical Approach

O’Brien

1989

The Engineering Economist

View full text Add to dashboard Cite

show abstract

Untitled

Peyser

1999

Review of Quantitative Finance and Accounting

View full text Add to dashboard Cite

scite is a Brooklyn-based organization that helps researchers better discover and understand research articles through Smart Citations–citations that display the context of the citation and describe whether the article provides supporting or contrasting evidence. scite is used by students and researchers from around the world and is funded in part by the National Science Foundation and the National Institute on Drug Abuse of the National Institutes of Health.

Contact Info

hi@scite.ai

10624 S. Eastern Ave., Ste. A-614

Henderson, NV 89052, USA

Blog Terms and Conditions API Terms Privacy Policy Contact Cookie Preferences Do Not Sell or Share My Personal Information

Made with 💙 for researchers

Part of the Research Solutions Family.

Three Ways to Present the Marginal Cost of Capital

Cited by 2 publications

References 8 publications

Operating Leverage in Cost Reduction Capital Budgeting Proposals: A Rigorous and Practical Approach

Operating Leverage in Cost Reduction Capital Budgeting Proposals: A Rigorous and Practical Approach

Untitled

Contact Info

Product

Resources

About