tailieunhanh - Lecture Fundamentals of corporate finance - Chapter 14: Cost of capital

After studying this chapter in the lecture, you should be able to: Explain what the cost of capital represents and why it is so important, estimate the cost of equity using the dividend growth model approach and the security market line approach, estimate the cost of debt and the cost of preferred stock, understand when it is appropriate and to use the WACC as a measure of the firm's required rate of return,. | Chapter Outline Chapter 14 Cost of Capital Chapter Organization The Cost of Capital: Some Preliminaries The Cost of Equity The Costs of Debt and Preferred Stock The Weighted Average Cost of Capital Divisional and Project Costs of Capital Flotation Costs and the WACC Calculating WACC for Bombardier Summary and Conclusions CLICK MOUSE OR HIT SPACEBAR TO ADVANCE copyright © 2002 McGraw-Hill Ryerson, The Cost of Capital: Issues Key issues: What do we mean by “cost of capital” How can we come up with an estimate? Preliminaries 1. Vocabulary—the following all mean the same thing: a. Required return b. Appropriate discount rate c. Cost of capital (or cost of money) 2. The cost of capital is an opportunity cost—it depends on where the money goes, not where it comes from. 3. For now, assume the firm’s capital structure (mix of debt and equity) is fixed. The Dividend Growth Model Approach Estimating the cost of equity: the dividend growth model approach According to the constant growth model, D1 P0 = RE - g Rearranging, D1 RE = + g P0 Example: Estimating the Dividend Growth Rate Percentage Year Dividend Dollar Change Change 1990 $ - - 1991 $ 1992 1993 1994 Average Growth Rate ( + + + )/4 = Example: The SML Approach According to the CAPM: RE = Rf + bE (RM - Rf) 1. Get the risk-free rate (Rf ) from financial press—many use the 1-year Treasury bill rate, say 6%. 2. Get estimates of market risk premium and security beta. a. Historical risk premium — % b. Beta—historical (1) Investment information services - ., S&P, Value Line (2) Estimate from historical data 3. Suppose the beta is , then, using the approach: RE = Rf + b E (RM - Rf) = 6% + __ = __ Example: The SML Approach According to the CAPM: RE = Rf + bE (RM - Rf) 1. Get the risk-free rate (Rf ) from . | Chapter Outline Chapter 14 Cost of Capital Chapter Organization The Cost of Capital: Some Preliminaries The Cost of Equity The Costs of Debt and Preferred Stock The Weighted Average Cost of Capital Divisional and Project Costs of Capital Flotation Costs and the WACC Calculating WACC for Bombardier Summary and Conclusions CLICK MOUSE OR HIT SPACEBAR TO ADVANCE copyright © 2002 McGraw-Hill Ryerson, The Cost of Capital: Issues Key issues: What do we mean by “cost of capital” How can we come up with an estimate? Preliminaries 1. Vocabulary—the following all mean the same thing: a. Required return b. Appropriate discount rate c. Cost of capital (or cost of money) 2. The cost of capital is an opportunity cost—it depends on where the money goes, not where it comes from. 3. For now, assume the firm’s capital structure (mix of debt and equity) is fixed. The Dividend Growth Model Approach Estimating the cost of equity: the dividend

• Tài chính doanh nghiệp
• Corporate finance
• Fundamentals of corporate finance
• Tài chính doanh nghiệp
• Business organization
• Financial management
• Cost of capital
• The Cost of Equity
• The Cost of Debt
• The Cost of Preferred Stock
• The Weighted Average Cost of Capital
• Project Costs of Capital
• Intellectual capital disclosure
• Intellectual capital reporting
• Cost of debt
• Cost of equity
• Literature review
• Target capital structure
• Existing enterprises
• Capital in existing enterprises
• Method to determine cost
• Leverage and capital requirement
• Estimating the cost
• Equity capital
• Banking sector in the Eurozone
• Cost management
• Cost systems
• Lecture Cost management
• Operational performance measurement
• Discounted cash flow
• Capital investments
• Strategic financial management
• Capital budgeting under conditions
• Capital budgeting
• The cost of capital
• Global finance
• Global financial management
• Lecture Global financial management
• Domestic capital budgeting
• Free cash flows
• Finance management
• Fundamentals of finance management
• Preferred stock
• Component cost of debt
• Component cost
• Cost management accounting
• Strategic cost management
• Basic cost management concepts
• Cost behavior
• Activity based costing
• A process systems approach
• Capital investment
• Environmental cost management
• Productivity measurement
• Proi tability analysis
• Cost volume proit analysis
• Business finance
• Lecture Business finance
• Capital market
• Project evaluation
• Competitive advantage period
• Capital asset pricing model
• Empirical analysis
• Essentials of corporate finance
• The costs of debt
• Strategic performance measurement
• Fundamentals of finance
• Managerial finance
• Lecture Managerial finance
• Financial statements
• Cost of capital components
• Common equity