Corporate Finance: Instructor\'s Manual Applied Corporate Finance

(Amelia) #1
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 of debt
Media Networks 10. 10 % 3. 29 % 78. 98 % 21. 02 % 8. 67 %
Parks and Resorts 9. 12 % 3. 29 % 78. 98 % 21. 02 % 7. 90 %
Studio Entertainment 10. 43 % 3. 29 % 78. 98 % 21. 02 % 8. 93 %
Consumer Products 10. 39 % 3. 29 % 78. 98 % 21. 02 % 8. 89 %
Disney 10. 00 % 3. 29 % 78. 98 % 21. 02 % 8. 59 %

All of the divisions are assumed to share the same debt ratio and the cost of


debt. If they had borrowed on their own, we would have used division specific


debt ratios and costs of debt.


These would be the hurdle rates that we would use to analyze projects at each of


these divisions.

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