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Erschienen in:
2018 | OriginalPaper | Buchkapitel
18. The Golden Age of the Company (Three Colors of Company’s Time)
verfasst von : Peter Brusov, Tatiana Filatova, Natali Orekhova, Mukhadin Eskindarov
Erschienen in: Modern Corporate Finance, Investments, Taxation and Ratings
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Abstract
In this chapter and the next one, we return back to corporate finance in order to describe a very important discovery, made by us recently (Brusov et al., Modern corporate finance, investment and taxation, Springer International Publishing, Berlin, 2015a, J Rev Global Econ 4:21–42, 2015b). We investigate the dependence of attracting capital cost on the time of life (age) of company n at various leverage levels, at various values of capital costs with the aim of defining minimum cost of attracting capital. All calculations have been done within modern theory of capital cost and capital structure by Brusov–Filatova–Orekhova (Brusov and Filatova, Finance Credit 435:2–8, 2011; Brusov et al., Appl Financ Econ 21:815–824, 2011a, Res J Econ Bus ICT 2:16–21, 2011b, Res J Econ Bus ICT (UK) 2:11–15, 2011c, Appl Financ Econ 22:1043–1052, 2012a, J Rev Global Econ 1:106–111, 2012b, J Rev Global Econ 2:94–116, 2013a, J Rev Global Econ 2:183–193, 2013b, Cogent Econ Finance 2:1–13, 2014a, J Rev Global Econ 3:175–185, 2014b; Filatova et al., Bull FU 48:68–77, 2008; Brusova, Financ Anal Prob Sol 34:36–42, 2011).
It is shown for the first time that valuation of weighted average cost of capital (WACC) in the Modigliani–Miller theory (Мodigliani and Мiller, Am Econ Rev 48:261–297, 1958, Am Econ Rev 53:147–175, 1963, Am Econ Rev 56:333–391, 1966) is not minimal and valuation of the company capitalization is not maximal, as all financiers supposed up to now: at some age of the company, its WACC value turns out to be lower than in Modigliani–Miller theory, and company capitalization V turns out to be greater than V in Modigliani–Miller theory.
It is shown that, from the point of view of cost of attracting capital, there are two types of dependences of WACC on the age of company n: monotonic descending of WACC with n and descending of WACC with passage through minimum, followed by a limited growth (Brusov et al., Modern corporate finance, investment and taxation, Springer International Publishing, Berlin, 2015a, J Rev Global Econ 4:21–42, 2015b). The companies with the latter type of dependence of WACC on the age of company n can take advantage of the benefits given at a certain stage of development by discovered effect. Moreover, since the “golden age” of company depends on the company’s capital costs, k
e and k
d, by controlling them (e.g., by modifying the value of dividend payments that reflect the equity cost, etc.), the company may extend its “golden age” when the cost to attract capital becomes minimal (less than perpetuity limit) and the capitalization of companies becomes maximal (above than perpetuity assessment) up to a specified time interval. It has been concluded that existing presentations concerning the results of the theory of Modigliani–Miller (Мodigliani and Мiller, Am Econ Rev 48:261–297, 1958, Am Econ Rev 53:147–175, 1963, Am Econ Rev 56:333–391, 1966) in these aspects are incorrect. We discuss the use of opened effects in economics.