the cost of capital 36 mins

... Understand the cost of capital and the specific sources of capital associated with the cost of capital • Determine the cost of debt and preference share capital • Calculate cost of ordinary share capital, ... / Principles of Managerial Finance / 6th edition Weighted Average Cost Of Capital Duchess Limited has calculated the costs of the various types of capital to be: The company uses the following ... next dollar of total new financing  Is an increasing function of the level of total new financing  The ‘break point’ is the level of total new financing at which the cost of one of the financing...

Ngày tải lên: 16/12/2013, 14:57

... shows that the cost of capital of the firm depends on four factors: the risk free rate, the aggregate risk tolerance of the market, the expected cash flow of the firm, and the covariance of the firm’s ... b ) Clearly the cost of capital for the firm will be somewhere in between the cost of capital j for the riskless component and the cost of capital for the risky component But if the firm’s expected ... increases the variance and covariances, which increases the cost of capital The equilibrium is then the net of these two effects In our example, the overall effect decreases the cost of capital. 22...

Ngày tải lên: 06/03/2014, 21:20

... Chapter uses the rate of return concepts covered in previous chapters, along with the concept of the weighted average cost of capital (WACC), to develop a corporate cost of capital for use in capital ... describing the logic of the WACC, and why it should be used in capital budgeting We next explain how to estimate the cost of each component of capital, and how to put the components together to ... along with the costs of those components, are used to calculate the firm’s weighted average cost of capital, WACC The weights could be based either on the accounting values shown on the firm’s...

Ngày tải lên: 01/07/2014, 21:28

... 23/8/2012 B02022 – Chapter – The Cost of Capital 36 Should the company use the composite WACC as the hurdle rate for each of its divisions? Estimate the cost of capital that the division would have ... target weights for the percentages of the firm that will be financed with the various types of capital 7.2 Weighted Average Cost of Capital 23/8/2012 B02022 – Chapter – The Cost of Capital 29 23/8/2012 ... determine the risk-adjusted cost of capital for a particular division? 39 23/8/2012 B02022 – Chapter – The Cost of Capital 40 Find the division’s market risk and cost of capital based on the CAPM,...

Ngày tải lên: 12/07/2014, 14:12

... project using the techniques in Chapter 11  Use judgment to scale up or down the cost of capital for an individual project relative to the divisional cost of capital 9 - 47 Why is the cost of internal ... 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 9-5 Should we focus on historical (embedded) costs ... reflect the division’s risk and capital structure 9 - 37 What procedures are used to determine the risk-adjusted cost of capital for a particular division?  Estimate the cost of capital that the...

Ngày tải lên: 30/10/2014, 08:23

... project using the techniques in Chapter 11  Use judgment to scale up or down the cost of capital for an individual project relative to the divisional cost of capital 9 - 47 Why is the cost of internal ... 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 9-5 Should we focus on historical (embedded) costs ... reflect the division’s risk and capital structure 9 - 37 What procedures are used to determine the risk-adjusted cost of capital for a particular division?  Estimate the cost of capital that the...

Ngày tải lên: 06/04/2015, 19:41

... Ước lượng phần bù rủi ro thị trường Phương pháp dựa vào phần bù rủi ro lịch sử để dự báo, thực theo bước sau: • Sử dụng trái phiếu phủ dài hạn: tính tốn phần bù rủi ro thị trường thường sử dụng ... (annualized premiums) cho SMB (3,0%) HML (4,4%), chi phí vốn Home Depot 9,8 %, đối lập với 10,4 % theo CAPM Lý thuyết chênh lệch giá (APT) • Ước tính chi phí nợ sau thuế • Để ước tính chi phí vốn ... giao dịch, sử dụng phương pháp sau: Xác định xếp hạng tín dụng cơng ty nợ dài hạn có bảo đảm Tiếp theo, kiểm tra trung bình lợi tức đáo hạn danh mục đầu tư trái phiếu dài hạn nhằm đánh giá khả chi...

Ngày tải lên: 28/09/2015, 15:37

... alter the relative prices of shars until the WACCs become equal The level of gearing is therefore irrelevant to the WACC and the value of the firm 19 The The Cost Cost of of Equity Equity Capital ... onthe the wealth wealthof ofshareholders shareholders 15 The The Cost Cost of of Capital Capital A A firm firm will will invest invest only only ifif the the expected expected rate rate of of ... estimate the cost of capital Capital Capital and and Capital Capital Budgeting Budgeting Capital: is the stock of assets that will generate a flow of income in the future Capital budgeting: is the...

Ngày tải lên: 04/10/2015, 20:08

... b The cost of debt used to calculate the weighted average cost of capital is based on an average of the cost of debt already issued by the firm and the cost of new debt c One problem with the ... measure of the before-tax cost of capital b Typically the after-tax cost of debt financing exceeds the after-tax cost of equity financing c The WACC measures the marginal after-tax cost of capital ... WACC represents the cost of capital based on historical averages In that sense, it does not represent the marginal cost of capital e The cost of retained earnings exceeds the cost of issuing new...

Ngày tải lên: 22/11/2016, 11:02

... b The cost of debt used to calculate the weighted average cost of capital is based on an average of the cost of debt already issued by the firm and the cost of new debt c One problem with the ... measure of the before-tax cost of capital b Typically the after-tax cost of debt financing exceeds the after-tax cost of equity financing c The WACC measures the marginal after-tax cost of capital ... WACC represents the cost of capital based on historical averages In that sense, it does not represent the marginal cost of capital e The cost of retained earnings exceeds the cost of issuing new...

Ngày tải lên: 16/03/2017, 10:36

... to the risk of the firm’s other projects, the proper discount rate is the firm’s cost of capital, 12-10 Copyright © 2006 McGraw-Hill Ryerson Limited which is a weighted average of the costs of ... 10.47% d If the company wishes to expand its present business then the WACC is a reasonable estimate of the discount rate since the risk of the proposed project is similar to the risk of the existing ... now riskier The new financing mix for the firm would be E = 1,000 and D = 585.7 Therefore, = = 369 and = = 631 If the cost of debt is still 9%, then we can solve for the new cost of equity as...

Ngày tải lên: 24/02/2018, 08:34

Ngày tải lên: 07/03/2018, 09:22

... 477 Marginal Cost of Capital (MCC) The cost of obtaining another dollar of new capital; the weighted average cost of the last dollar of new capital raised As long as Allied keeps its capital structure ... For these firms, the cost of capital must reflect the average cost of the various sources of funds used, not just the costs of equity Assume that Allied Food Products has a 10 percent cost of debt ... effect on the cost of capital Tax rates are used in the calculation of the component cost of debt In addition, there are other less apparent ways in which tax policy affects the cost of capital...

Ngày tải lên: 06/04/2018, 10:53

... the article the authors say that the methodology is to calculate the risk of the cost of capital, although at the end they say it is to define the risk for the equity cost The way the methodology ... inflationary component and not due to the capital structure In this situation, WACC is the cost of the assets, KA, or the cost of the firm, Ku and at the same time is the cost of equity when unlevered This ... determine the optimal amount of leverage The capital structure of the firm is the combination of debt and equity in it That is, VL the value of the levered firm is equal to VUL the value of the unlevered...

Ngày tải lên: 07/03/2014, 00:20

... and the audit on the cost of capital of the client firm I find that the cost of capital is inversely proportional to the length of the auditor tenure I also find that the client firms cost of capital ... lower cost of capital for the client firm (technical aspect of auditing) The third role of the audit indicates that the more financial resources the auditor has, the lower the cost of capital of the ... to the deterioration of the insurance capacity of L&H Within the context of cost of capital, KR document a significant negative relation between engaging a Big4 auditor and the cost of capital of...

Ngày tải lên: 01/06/2014, 14:04

... audit firms is compared to the cost of capital of Big-audit firms in terms of the expected effect of the level of audit quality provided on the cost of capital The cost of capital is split into two ... reducing measurement error of audit quality 2.4 Cost of Capital The cost of capital for a firm is a weighted sum of the cost of equity and the cost of debt Firms finance their operations by three ... higher costs of capital, where the information risk concerns the uncertainty of information used or desired by investors to price the expected cost of capital The cost of capital for clients of Second-Tier...

Ngày tải lên: 03/06/2014, 02:15

... long as the distribution of returns is symmetric The risk to Hippique shareholders depends on the market risk, or beta, of the investment in the black stallion The information given in the problem ... lowest variance of return Half of the portfolio is invested in Alcan stock, and half of the portfolio must be invested in one of the other securities listed Thus, we calculate the portfolio variance ... to: the covariance of the stock’s returns with the market divided by the variance of the market return Thus: βZ = 800/400 = 2.0 b For a fully diversified portfolio, the standard deviation of portfolio...

Ngày tải lên: 14/08/2014, 11:20

... (and thereby generating the expectation of a strengthening of the rand) or by raising interest rates Under either of these options, it would probably be both difficult and undesirable for the ... (NOFP), which is a measure of its short-term foreign currency exposure, has been reduced by nearly two-thirds since the currency crisis of 1998 Nevertheless, the NOFP and other indicators of ... or the recipient of the inflow may decide to reinvest the funds overseas, exchange control regulations permitting -7- However, the findings also indicate that all other components of the capital...

Ngày tải lên: 24/10/2012, 09:11

... introduce a definition for the cost of capital by considering the incompleteness of the insurance market Then we analyse the impact of the cost of capital on the valuation of insurance contracts ... changing in the same proportions as the cost of capital B for an in increase in the capital cost γ The initial price of the contract V0 which excludes the cost of capital remains indifferent to the level ... an amount corresponding to the cost of capital B 14 The following example illustrates the impact of the capital cost γ on the price of the contract and on the target capital P0 , _ _B, −− TC...

Ngày tải lên: 13/04/2013, 13:04