CH-14 - GSB 531 Managerial Finance Chapter 14 Cost of...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 GSB 531 Managerial Finance Chapter 14 Cost of Capital Preliminaries • Capital Budgeting, appropriate discount rate, required return, cost of capital • Risk-free investment project, what discount rate would be appropriate ??? • How about risky investment project ??? Preliminaries • The cost of capital for an entire firm ? • Weighted Average Cost of Capital (WACC) • Firms raise capital from debt and equity • Cost of debt capital: tax effect • Cost of equity capital: depends on the riskiness of the firm as an investment • Firm has a certain debt-to-equity ratio Î
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 The Cost of Equity • Cost of Equity: the return that equity investors require on their investment in the firm. • Not directly observed, two ways to estimate: • The Dividend Growth Model Approach • The Security Market Line Approach The Dividend Growth Model Approach •P 0 = D 1 / (R – g) Î •R = D 1 / P 0 + g • Usually D 1 and P 0 can be observed
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/30/2011 for the course GSB 531 taught by Professor Bing during the Spring '11 term at Cal Poly.

Page1 / 4

CH-14 - GSB 531 Managerial Finance Chapter 14 Cost of...

This preview shows document pages 1 - 3. Sign up to view the full document.

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