Chap 11 Cost of Capital-20191018112930.pdf - l r r t r ri I I l r < C o s l o f C a p i t a l b e u s e d t o f i n d t h e W A C C.I n g e n e r a l,c

Chap 11 Cost of Capital-20191018112930.pdf - l r r t r ri I...

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( l r . r ; , t r . ri I I l r < C o s l o f C a p i t a l 397 be used to find the WACC. In general, companies consider a number of factors and then establish a target capital structure that is used to calculate the WACC. We discuss the target capital structure and its affecton the WACC in more detail in Chapter15. The cost of capital is a key element in capital budgeting decisions, our focus in the following chapters. Indeed, capital budgeting as it should be done is impossible without a good estimateof the cost of capital; so you need to have a good understanding of cost of capital concepts before you continue to the next chapter, where we discuss capital budgetingbasics. KEY TERMS Define earch of tire following terms: a. Target capital strr,rcture; capital componetrts b. Before-tax cost of debt, r.1; after-tax cost of tlebt, r.1(1 - T) c. Cost of preferrcc-l stock, rr- cl. Cost of retained earnings, r.; cost of nelv commoll 5f1rck, r., e. Weighted average cost of capital, WACC f.
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  • Fall '16
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