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An Amendment to the Note on the Cost of Debt

Published online by Cambridge University Press:  19 October 2009

Glen A. Mumey
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Extract

Haley's line of reasoning can be reconstructed in the following way. When a borrower incurs a liability (issues a bond) he should gauge any prospective asset purchase with the proceeds against an alternative fund use, the purchase of his own bond. If the proceeds realized from the bond are B, but if the borrower would willingly pay L to be free of the obligation, L becomes a relevant variable in the asset acceptance decision. If the discounted value of any asset exceeds L, borrowing to buy it will be subjectively wealth-enhancing, whether or not the discounted value exceeds B.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 2 , Issue 2 , June 1967 , pp. 200 - 201
Copyright
Copyright © School of Business Administration, University of Washington 1967

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References

1 Haley, Charles W., “A Note on the Cost of Debt”, Journal of Financial and Quantitative Analysis, Vol. I, No. 4 (12 1966).Google Scholar