Inflation in Brusov–Filatova–Orekhova Theory and in its Perpetuity Limit – Modigliani – Miller Theory

Authors

  • Peter N. Brusov Financial University
  • Tatiana Filatova Financial University
  • Natali Orehova Department of Financial and Economical Technology

Keywords:

Brusov–Filatova–Orekhova theory, Modigliani – Miller theory, inflation

Abstract

In this paper the influence of inflation on capital cost and capitalization of the company within modern theory of capital cost and capital structure – Brusov–Filatova–Orekhova theory (BFO theory) (Brusov et al. 2011, 2013; Filatova et al., 2008) and within its perpetuity limit – Modigliani – Miller theory is investigated. By direct incorporation of inflation into both theories, it is shown for the first time that inflation not only increases the equity cost and the weighted average cost of capital, but as well it changes their dependence on leverage. In particular, it increases growing rate of equity cost with leverage. Capitalization of the company is decreased under accounting of inflation.

Author Biographies

Peter N. Brusov, Financial University

Department of Applied Mathematics

Tatiana Filatova, Financial University

Municipal Management Faculty

Natali Orehova, Department of Financial and Economical Technology

Institute of Business, Management and Low

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Published

2014-06-18

How to Cite

Brusov, P. N., Filatova, T., & Orehova, N. (2014). Inflation in Brusov–Filatova–Orekhova Theory and in its Perpetuity Limit – Modigliani – Miller Theory. Journal of Reviews on Global Economics, 3, 175–185. Retrieved from http://lifescienceglobalca.com/index.php/jrge/article/view/1932

Issue

Vol. 3 (2014)

Section

Articles

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