Vol. 2, Issue 10 (2015)
Cost of capital theory and firm value: Conceptual perspective
Author(s): Toba Michael Ayeni, Babatunde Johnson Olaoye
Abstract: This paper examines the cost of capital theory and firm value. Also, the relationship between cost of capital theory and firm value are considered. From the review of conceptual and theoretical literature the study emphasis on how cost of capital theory can lead to an operational definition of the cost of capital and how that concept can be used in turn as a basis for rational investment decision-making within the firm that enhances firm value. This paper is a conceptual work which makes use of library desk research and existing literature on the subject matter. The study recommends that firm should have more debt for greater bargaining power and/or the market alternatives of its suppliers. The study recommends the debt can increase firm value. The implies that a firm should have more debt for greater bargaining power and/or the market alternative of its suppliers.