Abstract
maximization of the total market value of the firm. The primary purpose of this comment is to reconcile the generally accepted definition of the after-tax weighted average cost of capital (wacc) with the definition proposed by Arditti. In accomplishing this objective we will derive three definitions of the wacc, and will show that the capital structure that minimizes two of the three definitions (within Arditti's framework) is an optimal one. The traditional wacc is derived from the relationship between the market value of a levered firm, VL, and its unlevered counterpart, Vu, both of which are expected to earn the perpetual cash flow X before interest and taxes.' Specifically,
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