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What is the "cost of capital" to a firm in a world in which funds are used to acquire assets whose yields are uncertain; and in which capital can be obtained by many different media, ranging from pure debt instruments, representing money-fixed claims, to pure equity issues, giving holders only the right to a pro-rata share in the uncertain venture? This question has vexed at least three classes of economists: the corporation finance specialist concerned with the techniques of financing firms so as to ensure their survival and growth; the managerial economist concerned with capital budgeting; and the economic theorist concerned with explaining investment behavior at both the micro and macro levels. (en) |
