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Cost of Capital

QuestionAnswer
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]
Created by: thongkk