click below
click below
Normal Size Small Size show me how
Cost of Capital
Question | Answer |
---|---|
WACC | WACC = (wd)[kd(1 – t)] + (wps)(kps) + (wce)(kce) |
Marginal Cost of Capital (MCC) | MCC is the WACC of the next dollar of capital raised. marginal cost of capital curve slopes upward |
Cost of Debt | kd (1 – marginal tax rate) |
Cost of Preferred Stock | k = preferred dividend / market price of preferred |
Cost of Common Equity (CAPM) | kce = RFR + [E(Rmkt) – RFR] |
Cost of Common Equity (Div Discount) | k = D1/P0 + g |
Cost of Common Equity (Bond yield plus risk premium) | kce = bond market yield + risk premium |
Asset (unlevered) beta | Beta asset = Beta pure play [ 1/ 1+( (1-t) D/E) ] |
Company (Project) beta | Beta project = Beta asset [ 1+( (1-t) D/E) ] |
Cost of Common Equity with CRP | k = Rf + Beta [ E(Rmrt) – Rf + CRP] |
Country Risk Premium | CRP = sovereign yield spread * [ annualized sigma of equity index / annualized sigma of sovereign bond market in terms of developed market currency] |
Breakpoints | [Amount of capital at which the component's cost of capital changes] / [Weight of the component in the the capital structure] |