Cost of Capital

May 13, 2009

290 likes | 3.42k Views

Cost of Capital Components of Capital Summarized Balance Sheet December 31, 1998 - $ Millions Note: Current Liabilities includes a total of $346 million of permanent short-term debt. Summarized Balance Sheet December 31, 1994 - $ Millions

Share Presentation

Embed Code

Link

Gabriel

Download Presentation

Cost of Capital

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

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.

1.08k views • 74 slides

Cost of Capital

Cost of Capital. Dr Bryan Mills. Risk and Return. % return. % risk. Order of risk. Treasury bills and gilts (risk free) Loan Notes But ranked from AAA to BBB – with specialist ‘junk bonds’ being BB and less Equity. Dividend Valuation Model.

350 views • 28 slides

Cost of Capital

Cost of Capital. Outline. Meaning of Cost of Capital Significance of Cost of Capital Concept of Weighted Average Cost of Capital (WACC) Cost of Components of Capital Cost of Debt Cost of Preferred Stock Cost of Common Equity Flotation Costs. Cost of Capital.

397 views • 7 slides

Cost of Capital

Cost of Capital. FACULTY OF BUSINESS AND ACCOUNTANCY. Week 12. Introduction. The cost of capital is the rate of return that a firm must earn on its project investments (required rate of return);. To maintain its market value To attract funds from the market suppliers of capital.

698 views • 45 slides

Cost of Capital

Cost of Capital. RWJ-Chapter 14. Once again: What’s the Big Idea?. Earlier chapters on capital budgeting focused on the appropriate size and timing of cash flows. This chapter discusses the appropriate discount rate when cash flows are risky.

696 views • 35 slides

Cost of Capital

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

665 views • 53 slides

Cost of Capital

Cost of Capital. Chapter 10. Cost of Capital. No company can function without funds. To start functioning at a basic level a company needs funds. Now a question arises that where do these funds come form? . The funds needed by an organization comes from a number of sources:.

325 views • 18 slides

Cost of capital

Cost of capital. Key Concepts & Skills. Calculate & explain A firm’s cost of common equity capital A firm’s cost of preferred stock A firm’s cost of debt A firm’s overall cost of capital Analyze & discuss pitfalls of overall cost of capital & how to manage them

862 views • 34 slides

COST OF CAPITAL

COST OF CAPITAL. WEIGHTED AVG COST OF CAPITAL (WACC ) r = w d r d + w e r e w d = proportion of assets funded by debt r d = After-tax cost of debt w e = proportion of assets funded by equity r e = cost of equity. COST OF CAPITAL. WACC = 40(.10)+10(.15)+50(.18)

294 views • 13 slides

Cost of capital

Chapter 7. Cost of capital. Chapter Outline. The Cost of Capital: Introduction The Cost of Equity (CAPM and DDM) The Costs of Debt and Preferred Stock The Weighted Average Cost of Capital Divisional and Project Costs of Capital. Why Cost of Capital is Important.

707 views • 30 slides

Cost of Capital

Cost of Capital. Key Concepts and Skills. Know how to determine a firm’s cost of equity capital Know how to determine a firm’s cost of debt Know how to determine a firm’s overall cost of capital Understand pitfalls of overall cost of capital and how to manage them. Chapter Outline.

704 views • 42 slides

Cost of Capital

Cost of Capital. Goal of Financial Management:. Maximize the value of the firm as determined by: the present value of its expected cash flows , discounted back at a rate that reflects both the riskiness of the firms projects and the financing mix used to fund the projects.

677 views • 47 slides

Cost of Capital

15. Cost of Capital. Chapter 15 – Index of Sample Problems. Slide # 02 - 07 Cost of equity Slide # 08 - 09 Cost of preferred Slide # 10 - 15 Cost of debt Slide # 16 - 19 Portfolio weights Slide # 20 - 23 Weighted average cost of capital (WACC) Slide # 24 - 27 Flotation costs.

826 views • 29 slides

COST OF CAPITAL

COST OF CAPITAL. Concept of Cost of Capital. The cost of capital is the minimum required rate of return, a project must earn in order to cover the cost of raising funds being used by the firm in financing of the proposal. Concept of Cost of Capital.

1.33k views • 86 slides

Cost of Capital

Chapter Fifteen. Cost of Capital. Key Concepts and Skills. Know how to determine a firm’s cost of equity capital Know how to determine a firm’s cost of debt Know how to determine a firm’s overall cost of capital Understand pitfalls of overall cost of capital and how to manage them.

546 views • 39 slides

Cost of Capital

15. Cost of Capital. Key Concepts and Skills. Know how to determine a firm’s cost of equity capital Know how to determine a firm’s cost of debt Know how to determine a firm’s overall cost of capital Understand pitfalls of overall cost of capital and how to manage them. Chapter Outline.

602 views • 46 slides

Cost of Capital

Cost of Capital. John H. Cochrane University of Chicago GSB. Standard approach. Question: Should we invest, buy asset or company? Standard answer: Value = Expected Profit / Expected Return (Really, multiperiod version) ER? Use CAPM, ER = Rf + β E(Rm-Rf)

233 views • 14 slides

Cost of Capital

15. Cost of Capital. Questions and Problems. 1. With the information given, we can find the cost of equity using the dividend growth model. Using this model, the cost of equity is: RE = [420(1.06)/ 6500] + .06 = .1285 or 12.85% (See Eq. 15.1). 2. Calculating Cost of Equity

671 views • 49 slides

Cost of Capital

Cost of Capital. Topics. The Cost of Capital: Some Preliminaries The Cost of Equity The Costs of Debt and Preference Shares The Weighted Average Cost of Capital Divisional and Project Costs of Capital Flotation Costs and the Weighted Average Cost of Capital. Learning Objectives.

413 views • 35 slides

Cost of Capital

Chapter Fourteen. Cost of Capital. Prepared by Anne Inglis, Ryerson University. Key Concepts and Skills. Know how to determine a firm’s cost of equity capital Know how to determine a firm’s cost of debt Know how to determine a firm’s overall cost of capital

882 views • 39 slides

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.

385 views • 19 slides

More Related