The Transactional Asset Pricing Approach(TAPA): Incorporation of Leverage and Derivation of Extended Ellwood Formula with Fixed Leverage Benefits

The Paper discusses the derivation of the Ellwood formula on the basis of the Transactional Asset Pricing approach to valuation (TAPA) and proceeding from the dynamic principle of transactional equity-in-exchange.

Discussing the notion of leverage, it introduces a formulation, in capitalized value terms, and measurement, for leverage benefits to a property purchaser. It is found that such a measure for the Ellwood formula is always zero, essentially obviating any-gains-from-trade to the purchasers of property to be had on account of leveraged transactions. To address this weakness in the Ellwood formula, a modified formula is proposed, which accounts for the requirement of positivity of leverage benefits to the purchaser of property.