No. of Recommendations: 7
This will appear to be nitpicking, but it really is just that I want to make sure I am understanding the important point that you are making - do you really
mean axiomatically? Or could it be that you mean 'as a result of this process (i.e., the pursuit by competitors of returns on new capital in this industry, as
long as they are higher than the cost of capital.)'
No, I meant it.
"Axiomatically" isn't quite the mot juste...probably "by definition" would be better.
It's an economic identity: the total amount paid by everybody to get the use of money has to equal the total amount received by everybody to provide the use of money.
Divide that aggregate cost by the total amount of money provided, and you get the global weighted average cost of capital AND the global weighted average return on capital.
It's a very simple identity in the case of interest, and true in every sub period.
But it's also a separate broader identity for the total cost of capital including debt and equity--it's just much harder to measure it.
Jim
