Ch 12 Cost of capital

Ch 12 Cost of capital - Chapter 12 Determining the Cost of...

Info icon This preview shows pages 1–17. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 12 Determining the Cost of Capital
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 http://www.ft.com/cms/s/0/0abdb056-b78f-11de-9812-00144feab49a.h
Image of page 2
3
Image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4 http://www.ft.com/cms/s/0/a9bfe19e-36e5-11df-bc0f-00144feabdc0.ht
Image of page 4
5
Image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 FINA 111 – Part II FINA 111 Part II Valuation of Securities Measuring and Pricing Risk Financing Policy Bonds Ch 6 Stocks Ch 9 Risk-Return Tradeoff Ch 10 Risk Diversification and Risk Pricing Ch 11 Cost of Capital Ch 12 Debt Policy Ch 15 Payout Policy Ch 16 Done Done Next Done Done
Image of page 6
7 Objective of Financial Management Maximize Value of Firm (Maximize PPS) Welfare of Stakeholders Financial Policies Maximize wealth of investors
Image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
8 Financial Policies Short term Assets: Working Capital policy Ch 18 Financing policy: Cost of capital Ch 12 Capital Structure Ch 15 Payout policy Ch 16 Long term Assets: Capital Investment policy Ch 7,8 Maximize Value of firm
Image of page 8
9 Firm Valuation Firm Valuation Measuring and Pricing Risk Ch 10,11 Asset Valuation Ch 4,7,8,18 Financing Policies: Cost of Capital Ch 12 Capital Structure Ch 15 Payout Policy Ch 16 Securities Valuation: Bonds Ch 6 Stocks Ch 9 External Factors
Image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
10 Learning Objectives circle6 Understand the drivers of the firm’s overall cost of capital. circle6 Measure the costs of debt, preferred stock, and common stock. circle6 Compute a firm’s overall, or weighted average, cost of capital. circle6 Apply the weighted average cost of capital to value projects. circle6 Adjust the cost of capital for the risk associated with the project. circle6 Account for the direct costs of raising external capital.
Image of page 10
11 Cost of Capital Cost of Debt Cost of Equity Dividend Discount Model CAPM Cost of capital for project Issuing costs for new equity/debt Cost of Preferred Stock WACC
Image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
12 Chapter Outline 1. A First Look at the Weighted Average Cost of Capital – Basic Formula 2. The Firm’s Costs of Debt and Equity Capital 3. A Second Look at the WACC – Differences in Risk, Leverage, Tax Rates, Securities Used and Cash Balances Held Across Firms 4. Using the WACC to Value a Project (project has the same risk as the overall firm and same leverage) 5. Project-Based Costs of Capital (using WACC when project risks and leverage are different) 6. Adjusting Cost of Capital When Raising External Capital Is Costly
Image of page 12
13 Chapter Outline 1. A First Look at the Weighted Average Cost of Capital (WACC) – Basic Formula 1A. Levered versus Unlevered Cost of Capital 1B. WACC (Pre-Tax) for a Levered Firm 1C. Weights for WACC
Image of page 13

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
14 1. A First Look at the Weighted Average Cost of Capital (WACC) circle6 A firm’s sources of financing, which usually consist of debt and equity, represent its capital. circle6 A company may choose to finance its operations using equity alone or using a combination of debt and equity. circle6 The relative proportions of debt, equity, and other securities that a firm has outstanding constitute its capital structure.
Image of page 14
15 Figure 12.1 : A Balance Sheet
Image of page 15

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
16 1A. Levered versus Unlevered Cost of Capital circle6 Leverage: relative amount of debt on a firm’s balance sheet.
Image of page 16
Image of page 17
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern