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The Cost of Capital (Finance Management) (PowerPoint PPT)
PowerPoint (PPT) 57 Slides
BENEFITS OF DOCUMENT
- Provide of Three ways to determine the cost of equity
- Provide of the cost of equity based on the CAPM?
- Provides of factors influence a company's WACC
DESCRIPTION
This product (The Cost of Capital [Finance Management]) is a 57-slide PPT PowerPoint presentation (PPT), which you can download immediately upon purchase.
The Cost of Capital (Finance Management)
Lecture Outline
1. What types of long-term capital do firms use?
2. Should we focus on before-tax or after-tax capital costs?
3. Should we focus on historical (embedded) costs or new (marginal) costs?
4. Component Cost of Debt
5. Is preferred stock more or less risky to investors than debt?
6. What are the two ways that companies can raise common equity?
7. Why is there a cost for reinvested earnings?
8. Three ways to determine the cost of equity
9. What's the cost of equity based on the CAPM?
10. Estimating the Growth Rate
11. What factors influence a company's WACC?
12. A Project-Specific, Risk-Adjusted Cost of Capital
The concept of the cost of capital is key information used to determine a project's hurdle rate. A company embarking on a major project must know how much money the project will have to generate in order to offset the cost of undertaking it and then continue to generate profits for the company.
Cost of capital, from the perspective of an investor, is an assessment of the return that can be expected from the acquisition of stock shares or any other investment. This is an estimate and might include best- and worst-case scenarios. An investor might look at the volatility (beta) of a company's financial results to determine whether a stock's cost is justified by its potential return.
Cost of capital represents the return a company needs to achieve in order to justify the cost of a capital project, such as purchasing new equipment or constructing a new building.
Cost of capital encompasses the cost of both equity and debt, weighted according to the company's preferred or existing capital structure. This is known as the weighted average cost of capital (WACC).
A company's investment decisions for new projects should always generate a return that exceeds the firm's cost of the capital used to finance the project. Otherwise, the project will not generate a return for investors.
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Source: Best Practices in Business Case Development PowerPoint Slides: The Cost of Capital (Finance Management) PowerPoint (PPT) Presentation, UJ Consulting
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