Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/208465 
Authors: 
Year of Publication: 
2006
Series/Report no.: 
Working paper No. 3-2003
Publisher: 
Copenhagen Business School (CBS), Department of Economics, Frederiksberg
Abstract: 
Levy and Arditti (1973) introduced depreciable assets into the Modigliani and Miller (1958) model, and analyzed the implications for the cost of capital. Assuming that the firm reinvests indefinitely to maintain a constant expected cash flow, they found that depreciation increases the cost of capital before and after tax. Most of their assumptions are maintained. However, commitment to perpetual reinvestment is in most cases not a reasonable assumption. Without it, depreciation decreases the cost of capital before and after tax. The effect of depreciation is less in absolute value than in Levy and Arditti, but not insignificant.
Subjects: 
Cost of capital
depreciation
corporate taxes
JEL: 
G31
H25
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper

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