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Unformatted text preview: Chapter 12 RISK, COST OF CAPITAL, AND CAPITAL BUDGETING SLIDES CHAPTER WEB SITES 12.1 Key Concepts and Skills 12.2 Chapter Outline 12.3 Where Do We Stand? 12.4 The Cost of Equity Capital 12.5 The Cost of Equity Capital 12.6 Example 12.7 Example 12.8 Using the SML 12.9 Estimation of Beta 12.10 Estimation of Beta 12.11 Stability of Beta 12.12 Using an Industry Beta 12.13 Determinants of Beta 12.14 Cyclicality of Revenues 12.15 Operating Leverage 12.16 Operating Leverage 12.17 Financial Leverage and Beta 12.18 Example 12.19 Extensions of the Basic Model 12.20 The Firm versus the Project 12.21 Capital Budgeting & Project Risk 12.22 Capital Budgeting & Project Risk 12.23 Capital Budgeting & Project Risk 12.24 The Cost of Capital with Debt 12.25 Example: International Paper 12.26 Example: International Paper 12.27 Example: International Paper 12.28 Reducing the Cost of Capital 12.29 What is Liquidity? 12.30 Liquidity, Expected Returns and the Cost of Capital 12.31 Liquidity and the Cost of Capital 12.32 Liquidity and Adverse Selection 12.33 What the Corporation Can Do 12.34 What the Corporation Can Do 12.35 Quick Quiz A151 CHAPTER 12 Section Web Address Endofchapter material www.sec.gov investor.reuters.com finance.yahoo.com www.nasdbondinfo.com CHAPTER ORGANIZATION 12.1 The Cost of Equity Capital 12.2 Estimation of Beta RealWorld Betas Stability of Beta Using an Industry Beta 12.3 Determinants of Beta Cyclicality of Revenues Operating Leverage Financial Leverage and Beta 12.4 Extensions of the Basic Model The Firm versus the Project: Vive la Différence The Cost of Capital with Debt 12.5 Estimating Eastman Chemical’s Cost of Capital Eastman’s Cost of Equity Eastman’s Cost of Debt Eastman’s WACC 12.6 Reducing the Cost of Capital What is Liquidity? Liquidity, Expected Returns, and the Cost of Capital Liquidity and Adverse Selection What the Corporation Can Do ANNOTATED CHAPTER OUTLINE Slide 12.0 Chapter 12 Title Slide Slide 12.1 Key Concepts and Skills Slide 12.2 Chapter Outline 12.1. The Cost of Equity Capital CHAPTER 12 A152 Creating shareholder wealth depends on the magnitude, timing, and risk of cash flows. Prior chapters have dealt with magnitude and timing. In this chapter, we concentrate on the risk of the cash flows. Slide 12.3 Where Do We Stand? Lecture Tip: Students often find it easier to grasp the intricacies of cost of capital estimation when they understand why it is important. A good estimate is required for: Good capital budgeting decisions – neither the NPV rule nor the IRR rule can be implemented without knowledge of the appropriate discount rate Financing decisions – the optimal/target capital structure minimizes the cost of capitalOperating decisions – cost of capital is used by regulatory agencies in order to determine the “fair” return in some regulated industries (e.g....
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This note was uploaded on 12/21/2011 for the course NIKA 101 taught by Professor Temur during the Spring '11 term at Acton School of Business.
 Spring '11
 temur

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