文档介绍：Corporate Finance-Chapter 6 Cost of Capital
Chapter 6
Cost of Capital
Corporate Finance
Cost of ponents
Debt
Preferred
Common Equity
What types of long-term capital do firms use?
Long-term debt
Preferred stock
Common equity
ponents are sources of funding e from investors1>.
Accounts payable, accruals, and deferred taxes are not sources of funding e from investors, so they are not included in the calculation of the cost of capital.
What types of long-term capital do firms use?
Cost of Debt
Method 1: Ask an investment banker what the coupon rate would be on new debt.
Method 2: Find the bond rating for pany and use the yield on other bonds with a similar rating.
Method 3: Find the yield on pany’s debt, if it has any.
Focus on historical (embedded) costs or
new (marginal) costs?
The cost of capital is used primarily to make decisions which involve raising and investing new capital. So, we should focus on marginal costs.
Focus on before-tax or after-tax capital costs?
Tax effects associated with financing can be incorporated either in capital budgeting cash flows or in 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.
Comments about flotation costs
Flotation costs depend on the risk of the firm and the type of capital being raised.
The flotation costs ar