An Application of Fuzzy Set Theory to the Weighted Average Cost of Capital and Capital Structure Decision
Shin-Yun Wang, Chih-Chiang Hwang
DOI: 10.4236/ti.2010.14032   PDF    HTML     7,155 Downloads   13,212 Views   Citations


The purpose of this paper is to present the use of fuzzy logic to improve the calculation of weighted average cost of capital (WACC). The fuzzy WACC approach not only allows the pre-tax cost of debt, the effective tax rate, the tax benefit, and cost of equity to be treated as fuzzy numbers, it also offers ranking means to find the optimal debt ratio. This paper contributes to the literature by offering alternative methods to calculate the WACC and the optimal debt ratio for firms under uncertainty. Compared with the traditional WACC, the fuzzy WACC model can overcome the problems pertinent to uncertainty, complexity and imprecision. This paper thus sheds light on capital structure decision making.

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Wang, S. and Hwang, C. (2010) An Application of Fuzzy Set Theory to the Weighted Average Cost of Capital and Capital Structure Decision. Technology and Investment, 1, 248-256. doi: 10.4236/ti.2010.14032.

Conflicts of Interest

The authors declare no conflicts of interest.


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