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Outline
Lecture 16
Organization
Cost of Capital
CAPM
The Security Market Line
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View Full Document THE COST OF CAPITAL: Basic Ideas
How
To
determine
the
appropriate
discount
rate
for
use
in
evaluating
an
investment's worth we need to
THE COST OF CAPITAL: Basic Ideas
Cost of capital
Cost of capital
The
cost of capital
The following all mean the same thing:
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View Full Document Expected Return and Variance: Basic Ideas
Rational investors
Investors
The Cost of Capital
Cost of Capital
Cost of Capital (Required Rate of Return)
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View Full Document The Cost of Capital
Capital structure
(the firm's ratio of debt to
equity) taken as given for now.
The Cost of Capital: Cost of Equity
The return that investors require for
the equity financing can be estimated
by one of the two models:
CAPM approach
Dividend Growth Model Approach
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View Full Document
The
Capital Asset Pricing Model (CAPM)
 an
equilibrium model of the relationship between risk
and return.
What determines an asset’s (or investment’s)
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This note was uploaded on 06/22/2011 for the course FINA 365 taught by Professor Koch during the Spring '08 term at South Carolina.
 Spring '08
 KOCH
 Cost Of Capital

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