Although we know there exists a simple approach to solve the circularity between value and the discount rate, known as the Adjusted Present Value proposed by Myers, 1974, it seems that practitioners still rely on the traditional Weighted Average Cost of Capital, WACC approach of weighting the...

We derive and present the formula for optimal debt under the assumption that tax shields are discounted at the cost of levered equity, Ke and cash flows are on perpetuity. The formulation is consistent and is derived from basic financial principles. This formulation is valid for non-growing...

Since the Modigliani and Miller 1958 seminal paper, there has been a problem posed by the fact that the discount rate to value cash flows depends on the value of thesecash flows. This gives raise to the circularity problem.In this paper we propose an analytical solution to this circularity...