By the standards of Silicon Valley, calculations for the weighted average cost of capital and the capital asset pricing model are rather simple.

These equations offer the theoretical principle that companies can create value for shareholders by simply adjusting their net leverage. Debt capital is cheaper than equity. That is because it takes priority in a liquidation as well as the deductibility of interest expense.

BL Premium

This article is reserved for our subscribers.

A subscription helps you enjoy the best of our business content every day along with benefits such as exclusive Financial Times articles, ProfileData financial data, and digital access to the Sunday Times and Times Select.

Already subscribed? Simply sign in below.

Questions or problems? Email or call 0860 52 52 00. Got a subscription voucher? Redeem it now