tailieunhanh - Lecture Managerial finance - Chapter 10: The cost of capital

Lecture Managerial finance - Chapter 10 provides knowledge of the cost of capital. This chapter presents the following content: Cost of capital components: debt, preferred, common equity; WACC. | CHAPTER 10 The Cost of Capital Topics in Chapter 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. Accounts payable, accruals, and deferred taxes are not sources of funding that come from investors, so they are not included in the calculation of the cost of capital. We do adjust for these items when calculating the cash flows of a project, but not when calculating the cost of capital. Before-tax vs. After-tax Capital Costs Tax effects associated with financing can be incorporated either in capital budgeting cash flows or in cost of capital. Most firms incorporate tax effects in the cost of capital. Therefore, focus on after-tax costs. Only cost of debt is affected. Historical (Embedded) Costs vs. New (Marginal) Costs The cost of capital is used primarily to make decisions which . | CHAPTER 10 The Cost of Capital Topics in Chapter 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. Accounts payable, accruals, and deferred taxes are not sources of funding that come from investors, so they are not included in the calculation of the cost of capital. We do adjust for these items when calculating the cash flows of a project, but not when calculating the cost of capital. Before-tax vs. After-tax Capital Costs Tax effects associated with financing can be incorporated either in capital budgeting cash flows or in cost of capital. Most firms incorporate tax effects in the cost of capital. Therefore, focus on after-tax costs. Only cost of debt is affected. Historical (Embedded) Costs vs. New (Marginal) Costs The cost of capital is used primarily to make decisions which involve raising and investing new capital. So, we should focus on marginal costs. Cost of Debt Method 1: Ask an investment banker what the coupon rate would be on new debt. Method 2: Find the bond rating for the company and use the yield on other bonds with a similar rating. Method 3: Find the yield on the company’s debt, if it has any. A 15-year, 12% semiannual bond sells for $1,. What’s rd? 60 60 + 1,000 60 0 1 2 30 i = ? -1, . 30 60 1000 x 2 = rd = 10% N I/YR PV FV PMT INPUTS OUTPUT Component Cost of Debt Interest is tax deductible, so the after tax (AT) cost of debt is: rd AT = rd BT(1 - T) rd AT = 10%(1 - ) = 6%. Use nominal rate. Flotation costs small, so ignore. Cost of preferred stock: PP = $; 10%Q; Par = $100; F = $2. Use this formula: rps = Dps Pps (1-F) = ($100) $() = $10 $ = Time Line of Preferred 0 1 2 ∞ rps=? . $ DQ rPer = $ rPer rPer = $ $ = .

• Tài chính doanh nghiệp
• Managerial finance
• Lecture Managerial finance
• Financial statements
• Cost of capital components
• Common equity
• Cost of debt
• Principles of managerial finance
• Lecture Principles of managerial finance
• Environment of managerial finance
• Financial services
• Career opportunities
• Financial analysis
• Cash flow
• Financial planning
• Time value of money
• Future calue
• Risk and Return Fundamentals
• Interest rates
• Bond valuation
• Stock valuation
• Equity capital
• International managerial finance
• Capital budgeting cash flow
• Incremental cash flows
• Capital budgeting techniques
• Net present value
• The cost of capital
• Cost of long term debt
• Marginal cost
• Breakeven analysis
• Capital structure
• Operating breakeven point
• Working capital
• Current asset management
• Spontaneous liabilities
• Accounts payable management
• Short term loans
• Financial options
• Corporate finance
• Option terminology
• Dividend policy
• The financial market environment
• Corporate governance
• Managerial behavior
• Stock options
• Capital budgeting cash flows
• Payout policy
• Current liabilities management
• Business organization
• Maximize wealth
• Financial securities
• Free cash flows
• Future value
• Present value
• Rates of return
• Balance sheet
• Personal taxes