Lecture 9: Cost of Capital

Dec 30, 2012

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2. Cost of Capital. Definitionis concerned with what a firm has to pay for the capital it uses to finance new investments. In other words, it is a return required by investors.. 3. Factors influencing the cost of capital. General economic conditions determines the supply and demand of capital wi

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Lecture 9: Cost of Capital

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Cost of Capital

Cost of Capital. What Number Goes in the Denominator?. Discount Rate (a.k.a. Cost of Capital, or the Interest Rate). Rate at which you can move money of similar risk through time.

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Chapter 9: The Cost of Capital

Chapter 9: The Cost of Capital. The Cost of Capital:. Chapter Outline:. The Purpose of the Cost of Capital Capital Components Calculating Component Costs of Capital Calculating the WACC Factors that affect the cost of capital Problem areas in cost of capital.

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CHAPTER 9: The Cost of Capital

CHAPTER 9: The Cost of Capital. Cost of Capital Components Debt Preferred Common Equity WACC. What types of long-term capital do firms use?. Long-term debt Preferred stock Common equity. Capital Components. Capital components are sources of funding that come from investors.

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CHAPTER 9 The Cost of Capital

CHAPTER 9 The Cost of Capital. Cost of Capital Components Debt Preferred Common Equity WACC. What types of long-term capital do firms use?. Long-term debt Preferred stock Common equity. Capital components are sources of funding that come from investors.

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CHAPTER 9 The Cost of Capital

CHAPTER 9 The Cost of Capital. Cost of Capital Components Debt Preferred Common Equity WACC MCC IOS. © 1998 The Dryden Press. What types of long-term capital do firms use?. Long-term debt Preferred stock Common equity: Retained earnings New common stock. © 1998 The Dryden Press.

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MBA 643 Managerial Finance Lecture 9: Weighted Average Cost of Capital

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CHAPTER 9 The Cost of Capital

CHAPTER 9 The Cost of Capital. Sources of capital Component costs WACC Adjusting for flotation costs Adjusting for risk. What sources of long-term capital do firms use?. Calculating the weighted average cost of capital. WACC = w d k d (1-T) + w p k p + w c k s

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CHAPTER 9 The Cost of Capital

CHAPTER 9 The Cost of Capital. Sources of capital Component costs WACC Adjusting for flotation costs Adjusting for risk. What sources of long-term capital do firms use?. Cost of Capital.

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CHAPTER 9 The Cost of Capital

CHAPTER 9 The Cost of Capital. Problem solving. Problem 1:. Your company’ stock sells for $50 per share, its last dividend was $2, its growth rate is a constant 5%, and the company will incur a flotation cost of 15% if it sells new common stock. What is the firm’s cost of new equity?.

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CHAPTER 9 Determining the Cost of Capital

CHAPTER 9 Determining the Cost of Capital. Cost of Capital Components Debt Preferred Common Equity WACC. What types of long-term capital do firms use?. Long-term debt Preferred stock Common equity. Capital components are sources of funding that come from investors.

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CHAPTER 9 The Cost of Capital

CHAPTER 9 The Cost of Capital. Problem solving. Lidija Dedi. Problem 1:. Your company’ stock sells for $50 per share ,. its last dividend was $2, its growth rate is a constant 5%, and the company will incur a flotation cost of 15% if it sells new common stock.

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Cost of Capital

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Cost of Capital. Katharina Lewellen Finance Theory II April 9, 2003. What Next?. We want to value a project that is financed by both debt and equity Our approach: Calculate expected Free Cash Flows (FCFs) from the project

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Lecture 9: Cost of Capital

Lecture 9: Cost of Capital. At the end of this session you should be able to: define what is cost of capital; Explain the calculation of cost of capital: equity and debt calculate the weighted average cost of capital Discuss the arguments for and against WACC. Cost of Capital. Definition

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CHAPTER 9 The Cost of Capital

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Chapter 9 - Cost of Capital

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CHAPTER 9 The Cost of Capital

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Cost of Capital

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Lecture on Cost of Capital. www.AssignmentPoint.com. Cost of Capital. The rate of return required by the market suppliers of capital to attract their funds to the firm Used to decide whether a proposed corporate investment will increase or decrease the firm’s stock price.

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Cost of Capital

Cost of Capital. Rate of return required by firm’s investors Cost of capital is required rate of return for projects with same level of risk as overall firm Required rate of return must be adjusted to reflect anticipated risk of project. The Big Picture…. Cost of Capital.

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