The cost of capital under conditions of personal taxes and inflation

A firm's weighted average cost of capital is estimated considering corporate and personal taxes and inflationary conditions. Results indicate that the firm's cost of capital increases as a result of personal taxes and inflation, but that this growth is less than 100%. The findings also show that the cost of capital considered is consistent with existing valuation models. An extension of Hamada's (1972) work on the relationship between leveraged beta and financial leverage is also presented.