Using recent findings from brain sciences, we model the human brain as solving two optimization problems instead of one, which are (i) optimal resource allocation in the brain and (ii) mean-variance optimization. This changes the classical CAPM in only one way: an alpha appears which provides a...

This paper develops a precise method of estimating the cost of debt to a firm that is based on standard financial theories and empirical evidence on default risk and financial distress costs. An analysis with current data on the S&P 500 demonstrates that the capital structures of large firms are...