Seeking Alpha

jimmy46 » Comments » Single Comment |

  • Toward a New Theory of the Cost of Equty Capital [View article]
    Forgive me, but either I don't understand what you're saying or you're contradicting yourself.

    First you quote Merton:
    "since the equity holders have the put option of giving the debt holders the firm if things go bad,
    but the equity holders have all of the upside if things go well."

    Then you say:
    "As for common stocks, they should trade at an earnings or FCF yield greater than that of the highest after-tax yield on debts and other instruments."

    Are you forgetting to value that Put option?
    Having all the upside, even if it often doesn't realize, is worth a lot.

    Enough that I rarely buy bonds.
    Oct 19 16:37 pm |Rating: +2 0
All Comments by jimmy46 »
Comments by Ticker
AA, AAPL, AAUKY.PK, ABB, ABIO, ABK, ABR, ABT, ABX, AC, ACAS, ACC, ACF, ACH, ACI, ADBE, ADE, ADLS, ADM, AEM, AF, AFAM, AHR, AIB, AIG, AIR, AIV, AKR, AKS, ALX, AMAT, AMED, AMGN, AMSC, AMT, AMTD, AMZN, ANF, ANH, ANR, APA, APC, APD, APL, APPA, ARTC, ASA, ASBC, ASTE, ASTI,
jimmy46's
Comments Stats
462 comments
Rating: 237 (410 - 173 )