Chapter 10

# Chapter 10 - 10-1 CHAPTER 10 The Cost of Capital Sources of...

This preview shows pages 1–8. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 10-1 CHAPTER 10 The Cost of Capital Sources of capital Component costs WACC 10-2 What sources of long-term capital do firms use? Long-Term Capital Long-Term Debt Preferred Stock Common Stock Retained Earnings New Common Stock 10-3 Calculating the weighted average cost of capital WACC = w d r d (1-T) + w p r p + w c r s The ws refer to the firms capital structure weights. The rs refer to the cost of each component. 10-4 Should our analysis focus on before-tax or after-tax capital costs? Stockholders focus on A-T CFs. Therefore, we should focus on A-T capital costs, i.e. use A-T costs of capital in WACC. Only r d needs adjustment, because interest is tax deductible. 10-5 How are the weights determined? WACC = w d r d (1-T) + w p r p + w c r s Use accounting numbers or market value (book vs. market weights)? Use actual numbers or target capital structure? 10-6 Component cost of debt WACC = w d r d (1-T) + w p r p + w c r s r d is the marginal cost of debt capital. The yield to maturity on outstanding L- T debt is often used as a measure of r d . Why tax-adjust, i.e. why r d (1-T)? 10-7 A 15-year, 12% semiannual coupon bond sells for \$1,153.72. What is the cost of debt (r d )?...
View Full Document

## Chapter 10 - 10-1 CHAPTER 10 The Cost of Capital Sources of...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online