{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

2.9 Stud%20Week%2011%20lect%201%20Cost%20of%20Capital

# 2.9 Stud%20Week%2011%20lect%201%20Cost%20of%20Capital -...

This preview shows pages 1–10. Sign up to view the full content.

Cost of Capital – Part 2 Week 11 Lecture 1

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

View Full Document
Topics Covered Weighted Average Cost of Capital (WACC) Calculating Required Rates of Return Measuring Capital Structure Weights (next time)
Cost of Capital - review Cost of Capital  - The return the firm’s investors  could expect to earn if they invested in assets  with comparable degrees of risk.

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

View Full Document
Weighted Average Cost of Capital -  review WACC = w d r d (1-T) + w p r p  + w c r s   The w’s refer to the firm’s capital structure  weights. The r’s refer to the cost of each component.
WACC - review Three Steps to Calculating Cost of Capital 1. Calculate the value of each security as a  proportion of the firm’s market value. 2. Determine the  ____________________  on  each security. 3. Calculate a weighted average of these required  returns.

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

View Full Document
Component Costs – bonds and  preferred stock Bonds Preferred Stock Price of Preferred Stock = solve for r preferred
Component Costs – common  equity CAPM:  DCF: Own-Bond-Yield-Plus-Risk-Premium: Three ways to determine the cost of  common equity, r s

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

View Full Document
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 _____ capital. The _______________ on outstanding L-T  debt is often used as a measure of r d . The relevant cost of _______ is its  _________________________
Component Cost of Debt Taxes are an important consideration in the company  cost of capital because interest payments are deducted  from income before tax is calculated.

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.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern