chap_12 - Chapter 12 COST OF CAPITAL SLIDES 12.1 12.2 12.3...

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Chapter 12 COST OF CAPITAL SLIDES 12.1 Key Concepts and Skills 12.2 Chapter Outline 12.3 Why Cost of Capital Is Important 12.4 Required Return 12.5 Cost of Equity 12.6 The Dividend Growth Model Approach 12.7 Dividend Growth Model Example 12.8 Example: Estimating the Dividend Growth Rate 12.9 Advantages and Disadvantages of Dividend Growth Model 12.10 The SML Approach 12.11 Example – SML 12.12 Advantages and Disadvantages of SML 12.13 Example – Cost of Equity 12.14 Cost of Debt 12.15 Cost of Debt Example 12.16 Cost of Preferred Stock 12.17 Cost of Preferred Stock – Example 12.18 Weighted Average Cost of Capital 12.19 Capital Structure Weights 12.20 Example – Capital Structure Weights 12.21 Taxes and the WACC 12.22 Extended Example – WACC – I 12.23 Extended Example – WACC – II 12.24 Extended Example – WACC – III 12.25 Eastman Chemical Example – I 12.26 Eastman Chemical Example – II 12.27 Eastman Chemical Example - III 12.28 Table 12.1 12.29 Divisional and Project Costs of Capital 12.30 Using WACC for All Projects – Example 12.31 Pure Play Approach 12.32 Subjective Approach 12.33 Subjective Approach – Example 12.34 Quick Quiz
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A-146 COST OF CAPITAL CHAPTER WEB SITES Web sites may be referenced more than once in a chapter. This table just includes the section for the first reference. Chapter Section Web Address 12.2 my.zacks.com/earnings (note that this is an updated link) www.bloomberg.com 12.4 valuation.ibbotson.com What’s On the Web? www.sec.gov finance.yahoo.com www.bondsonline.com CHAPTER ORGANIZATION 12.1 The Cost of Capital: Some Preliminaries Required Return versus Cost of Capital Financial Policy and Cost of Capital 12.2 Cost of Equity The Dividend Growth Model Approach The SML Approach 12.3 The Costs of Debt and Preferred Stock The Cost of Debt The Cost of Preferred Stock 12.4 The Weighted Average Cost of Capital The Capital Structure Weights Taxes and the Weighted Average Cost of Capital Solving the Warehouse Problem and Similar Capital Budgeting Problems Calculating the WACC for Eastman Chemical 12.5 Divisional And Project Costs of Capital The SML and the WACC Divisional Cost of Capital The Pure Play Approach The Subjective Approach ANNOTATED CHAPTER OUTLINE Slide 12.1 Key Concepts and Skills Slide 12.2 Chapter Outline 12.1. The Cost of Capital: Some Preliminaries
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CHAPTER 12 A-147 .A Required Return versus Cost of Capital Lecture Tip, page 362: Students often find it easier to grasp the intricacies of cost of capital estimation when they understand why it is important. A good estimate is required for: - good capital budgeting decisions – neither the NPV rule nor the IRR rule can be implemented without knowledge of the appropriate discount rate - financing decisions – the optimal/target capital structure minimizes the cost of capital -operating decisions – cost of capital is used by regulatory agencies in order to determine the “fair” return in some regulated industries (e.g.
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