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Unformatted text preview: Cost of debt: o Yield to maturity when calculating value of bonds o Hard to find individual bond prices: Estimate yields on portfolios of debt w/ similar credit ratings Cost of preferred stock: o Simple formula Cost of common equity: o Either Dividend Discount Model or CAPM o DDM: Present value of a growing perpetuity formula Assume a constant growth rate, g Difficult to assume future dividends o CAPM: More common method Same formula from Ch. 8 Flotation cost adjusted initial outlay: o Financing needed/ (1 flotation cost %)...
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