Professional Documents
Culture Documents
The Cost of
Capital
Learning Objectives
Principles Used in This Chapter
1. The Cost of Capital: An Overview
2. Determining the Firms Capital Structure
Weights
3. Estimating the Costs of Individual Sources of
Capital
4. Summing Up Calculating the Firms WACC
5. Estimating Project Cost of Capital
6. Floatation costs and Project NPV
Key Terms 14-2
Copyright 2011 Pearson Prentice Hall. All rights reserved.
Learning Objectives
14%
12%
10%
8%
6%
4%
2%
0%
Debt Prefered Stock Common Stock
37.5%
Debt
62.5%,
Common stock
Enter:
N = 10; PV = -900; PMT = 50; FV =1000
I/Y = 6.38%
At growth rate of 5%
NPV
= PV(inflows) Initial outlay Floatation costs
Initial Outlay
NPV
Floatation costs
Cost of capital
Cost of debt
Cost of preferred equity
Cost of common equity
Divisional WACC
Floatation costs
Weighted Average Cost of Capital