vv-11 - cs = R rf + beta(R m-R f ) 2. Gordon model K cs = D...

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Ch 9 Cost of capital Why is cost of capital important. Discount rate for TVM and DCF Cost of debt Think of this as the borrowing rate Have to control for flotation costs Has to be after tax Cost of equity Preferred Have to control for flotation costs Perpetuity equation k ps = D/NP ps Common 2 ways to do common For retained earnings (internal equity), NO flotation costs 1. CAPM -> k
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Unformatted text preview: cs = R rf + beta(R m-R f ) 2. Gordon model K cs = D 1 /P + g For external equity -> must use flotation costs 1. CAPM external = CAPM internal *(1+flotation costs %) 2. Gordon Model -> K cs = D 1 /NP + g WACC Can expand to internal and external equity: and multiple types of debt: When discounting, have to use the right cost of capital....
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This note was uploaded on 04/07/2011 for the course BUS M 301 taught by Professor Jimbrau during the Winter '11 term at BYU.

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