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CHAPTER 9 the Cost of Capital

CHAPTER 9 the Cost of Capital

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Published by Ahsan

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Published by: Ahsan on Mar 04, 2010
Copyright:Attribution Non-commercial

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03/20/2013

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9-1
CHAPTER 9
 The Cost of Capital
Sources of capital
Component costs
WACC
Adjusting for flotation costs
Adjusting for risk
 
 
9-2
What sources of long-termcapital do firms use?
Long-Term Capital
 
Long-Term CapitalLong-Term Debt
 
Long-Term DebtPreferred Stock
 
Preferred StockCommon Stock
 
Common StockRetained Earnings
 
Retained EarningsNew Common Stock
 
New Common Stock
 
 
9-3
Calculating the weightedaverage cost of capital
WACC = w
d
k
d
(1-T) + w
p
k
p
+ w
c
k
s
 
 The w’s refer to the firm’s capitalstructure weights.
 The k’s refer to the cost of eachcomponent.

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