Average Period, User Cost, and Implications for Value, Interest, and Term Structure

This study weds the user cost of capital with average period in a modern analytical relationship and offers three implications. One, a real capital stock's fundamental value as a proportion of its current replacement cost depends on a ratio of average periods. Two, the effect on fundamental value of an increasing discount rate may be positive or negative and it too depends on a ratio of average periods. Three, an increase in average period of debt maturity allows an increase in the flow of interest from capital and, consequently, the yield curve is upward sloped irrespective of all else