Ch 12 Cost of capital

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

Info iconThis 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
Background image of page 1

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

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

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

View Full DocumentRight Arrow Icon
4 http://www.ft.com/cms/s/0/a9bfe19e-36e5-11df-bc0f-00144feabdc0.htm
Background image of page 4
5
Background image of page 5

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

View Full DocumentRight 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
Background image of page 6
7 Objective of Financial Management Maximize Value of Firm (Maximize PPS) Welfare of Stakeholders Financial Policies Maximize wealth of investors
Background image of page 7

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

View Full DocumentRight 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
Background 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
Background image of page 9

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

View Full DocumentRight Arrow Icon
10 Learning Objectives c Understand the drivers of the firm’s overall cost of capital. c Measure the costs of debt, preferred stock, and common stock. c Compute a firm’s overall, or weighted average, cost of capital. c Apply the weighted average cost of capital to value projects. c Adjust the cost of capital for the risk associated with the project. c Account for the direct costs of raising external capital.
Background 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
Background image of page 11

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

View Full DocumentRight 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
Background 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
Background image of page 13

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

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

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

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

Page1 / 116

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

This preview shows document pages 1 - 17. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online