Chapter 14
Cost of Capital
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Key Concepts and Skills
@ - Know how to determine a firms cost
' of equity capital
0 Know how to determine a firms cost
= of debt
- Know how to determine a firms
Example: Work the Web
~ Find estimates of WACC at
www.valuegro.net
° Look at the assumptions
How do the assumptions impact the estimate
of WACC?
Table 14.1 Cost of Equity
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Chapter 9
Net Present Value
and Other Investment
Criteria
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Key Concepts and Skills
Be able to compute payback and discounted
payback and understand their shortcomings
Understand accounting rates
Making; Capital
3 weszmem Decisions
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Key Concepts and Skills
* Undetstctnd how to determine the
mm cth cash ows for various types
_ ; wt pwpeeett investments
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she-sow
Pie-capitalizing a Firm
0 iS all e uit w.th
0 EBIT is $2,000,000 and will remain
constant. All earnings are paid out as
diVidends.
° The tax rate is 40%.
0 The firm wants to issue $2 million in bonds
and repurchase stock. The bonds would
have a YT
7/
Comprehensive Problem
- An investment will provide you with $100 at the
end of each year for the next 10 years. What is the
present value of that annuity if the discount rate IS
8% annually.)
- What is the present value of the above if the
payments are