TAILIEUCHUNG - Lecture Contemporary financial management (9th Edition): Chapter 11 - Moyer, McGuigan, Kretlow

Chapter 11 - The cost of capital. This chapter discusses the concept of the cost of capital and develops approaches used to measure it. Weighted average cost of capital (WACC) Risk vs. required return trade-off Individual components | 11 The Cost of Capital Introduction This chapter discusses the concept of the cost of capital and develops approaches used to measure it. Weighted average cost of capital (WACC) Risk vs. required return trade-off Individual components Cost of Capital Determined in the capital markets Depends on the risk associated with the firm’s activities What the firm must pay for capital The return required by investors Minimum rate of return required on new investments Equal to the equilibrium rate of return demanded by investors in the capital markets for securities of that degree of risk Notation rf denotes riskless rate of return. kd denotes pretax cost of debt. ki denotes after-tax cost of debt. kp denotes cost of preferred stock. ke denotes cost of internal common equity. ke’ denotes cost of external common equity. Notation ka denotes weighted (marginal) cost of capital. p0 denotes the current market price of a security. pnet denotes the net proceeds to the firm from the sale of a security. pf denotes market value of a firm’s preferred stock. Notation E denotes market value of a firm’s common equity. B denotes market value of a firm’s debt in its capital structure. rm denotes expected return on the “market” portfolio. denotes the beta (systematic risk) of a company’s stock. Weighted Average Cost of Capital The weighted average cost of capital is the discount rate used when computing the net present value (NPV) of a project of average risk. Similarly, the weighted average cost of capital is the hurdle rate used in conjunction with the internal rate of return (IRR) approach to project evaluation (for a project of average risk). Weighted Average Cost of Capital Thus, the appropriate after-tax cost of capital figure to be used in capital budgeting not only is based on the next (marginal) capital to be raised, but also is weighted by the proportions of the capital components in the firm’s long-range target capital structure. Therefore, this figure is called the weighted .

• Quản trị kinh doanh
• Financial mnagement
• Contemporary financial management
• Quản lý tài chính
• Quản lý tài chính hiện đại
• Lecture Contemporary financial management
• Cost of capital
• International financial marketplace
• Financial performance
• Business organizations
• Time value of money
• Analysis of risk
• Long term debt
• Preferred stock
• Common stock
• Capital budgeting
• Capital structure
• Capital structure management
• Dividend policy
• Financing with derivatives