Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 161 From Cost of Equity to Cost of Capital ! The cost of capital is a composite cost to the firm of raising fin ...

Aswath Damodaran 162 What is debt? ! General Rule: Debt generally has the following characteristics: Commitment to make fixed p ...

Aswath Damodaran 163 Estimating the Cost of Debt ! If the firm has bonds outstanding, and the bonds are traded, the yield to mat ...

Aswath Damodaran 164 Estimating Synthetic Ratings ! The rating for a firm can be estimated using the financial characteristics o ...

Aswath Damodaran 165 Interest Coverage Ratios, Ratings and Default Spreads: Small Companies Interest Coverage Ratio Rating Typic ...

Aswath Damodaran 166 Synthetic Rating and Cost of Debt for Bookscape ! Rating based on interest coverage ratio = BBB ! Default S ...

Aswath Damodaran 167 Estimating Cost of Debt with rated companies ! For the three publicly traded firms in our sample, we will u ...

Aswath Damodaran 168 ! Application Test: Estimating a Cost of Debt ! Based upon your firm’s current earnings before interest and ...

Aswath Damodaran 169 Costs of Hybrids ! Preferred stock shares some of the characteristics of debt - the preferred dividend is p ...

Aswath Damodaran 170 Weights for Cost of Capital Calculation ! The weights used in the cost of capital computation should be mar ...

Aswath Damodaran 171 Estimating Market Value Weights ! Market Value of Equity should include the following Market Value of Shar ...

Aswath Damodaran 172 Converting Operating Leases to Debt ! The “debt value” of operating leases is the present value of the leas ...

Aswath Damodaran 173 Operating Leases at Disney ! The pre-tax cost of debt at Disney is 5. 25 % Year Commitment Present Value 1 ...

Aswath Damodaran 174 ! Application Test: Estimating Market Value ! Estimate the Market value of equity at your firm and Book Va ...

Aswath Damodaran 175 Current Cost of Capital: Disney ! Equity Cost of Equity = Riskfree rate + Beta * Risk Premium = 4 % + 1. 2 ...

Aswath Damodaran 176 Disney’s Divisional Costs of Capital Business Cost of After-tax E/(D+E) D/(D+E) Cost of capital Equity cost ...

Aswath Damodaran 177 Aracruz’s Cost of Capital Levered Beta Cost of Equity After-tax Cost of Debt D/(D+E) Cost of Capital In Rea ...

Aswath Damodaran 178 Bookscape Cost of Capital Beta Cost of After-tax D/(D+E) Cost of Equity cost of debt Capital Market Beta 0. ...

Aswath Damodaran 179 ! Application Test: Estimating Cost of Capital ! Using the bottom-up unlevered beta that you computed for y ...

Aswath Damodaran 180 Choosing a Hurdle Rate ! Either the cost of equity or the cost of capital can be used as a hurdle rate, dep ...