CHAPTER 10 - Cost of Capital Balance sheet Current assets...

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Cost of Capital Balance sheet Current assets Current liabilities Net Fixed Assets Long Term Debt Preferred Equity Common Equity Total Assets Total Liabilities and Equity
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Cost of Capital NFA are the company s income- producing assets (PP&E). They are Permanent assets require permanent financing. Long-term debt Preferred equity Common equity
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Cost of Capital Investors who supply this financing have a required rate of return on their investments. Their RRR is the firm s COST of this type of financing. If the financing costs the firm 10%, and they invest it to earn 12%, the value of the firm increases and shareholder wealth increases
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Cost of Capital 1. Is a weighted average of the different components (debt, preferred, common) 2. Is an after-tax number, since that is what is available to the shareholders 3. Is a marginal concept the cost of the NEXT DOLLAR OF CAPITAL RAISED FLOATATION COSTS
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Cost of long-term debt (kd) The YTM on the firm s existing debt
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This note was uploaded on 04/24/2011 for the course MKT 291 taught by Professor Brandabur during the Spring '08 term at Miami University.

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CHAPTER 10 - Cost of Capital Balance sheet Current assets...

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