ch14 - Multinational Financial Management Alan Shapiro 9th...

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Multinational Financial Management Alan Shapiro 9 th Edition Power Points by Joseph F. Greco, Ph.D. California State University, Fullerton
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CHAPTER 14 The Cost of Capital for Foreign Investment
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THE COST OF CAPITAL FOR FOREIGN INVESTMENTS I. THE COST OF EQUITY CAPITAL A. Definition 1. the minimum (required) rate of return necessary to induce investors to buy or hold the firm’s stock. 2. used to value future equity cash flows 3. determines common stock price
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COST OF EQUITY CAPITAL A. Capital Asset Pricing Model (CAPM) Formula r i = r f + Β i ( r m - r f ) where r i = the equity required rate r f = the risk free return rate Β i = Cov(r m , r i )/ σ 2 r m where Cov(r m , r i ) is the covariance between asset and market returns and σ 2 r m , the variance of market returns.
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CAPITAL (WACC) II. WACC For Foreign Projects A. Weighted Average Cost of Capital (WACC = k 0 ) Formula k 0 = (1-L) k e + L i d (1 - t) where L = the parent’s debt ratio i d (1 - t)
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This note was uploaded on 01/24/2011 for the course FINS 5516 taught by Professor A during the Three '10 term at University of New South Wales.

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ch14 - Multinational Financial Management Alan Shapiro 9th...

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