Table of Contents
The Cost of Capital
An Overview Of The Cost Of Capital
Basic Assumptions
Risk of Financing Costs
Risk of Financing Costs
The Basic Concept
Example
The Cost of Specific Sources of Capital
The Cost of Long-Term Debt (Bonds)
Before-Tax Cost of Debt
Example
Approximating the cost with approximation formula:
Example
After-Tax Cost of Debt
Example
The Cost of Preferred Stock
Calculating the Cost of Preferred Stock
Example
The Cost of Common Stock
Finding the Cost of Common Stock Equity
Constant Growth Valuation (Gordon) Model
Example
Capital Asset Pricing Model (CAPM)
Example
Comparing the Gordon and CAPM Techniques
The Cost of Retained Earnings
The Cost of New Issues of Common Stock
Cost of a new stock issue (kn) is calculated as:
Example
Calculating the WACC
Weighing schemes
WACC (ka) is calculated as:
Example
The Marginal Cost and Investment Decisions
The Marginal Cost and Investment Decision
The Weighted Marginal Cost Of Capital (WMCC)
Example
Example
Weighted Average Cost of Capital for Ranges of Total New Financing for Duchess Corporation
Graph The WMCC
The Investment Opportunities Schedule (IOS)
Making Financing/Investing Decisions
IOS and WMCC Schedules
DISCUSSION PROBLEMS
DISCUSSION PROBLEMS
DISCUSSION PROBLEMS
DISCUSSION PROBLEMS
Cost of Capital:
Cost of Capital:
Cost of Capital:
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