CP

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224 6 The Cost of Capital General Electric has long been recognized as one of the world’s best-managed companies, and it has rew ...

The Weighted Average Cost of Capital 225 Most important business decisions require capital. For example, when Daimler-Benz decid ...

226 CHAPTER 6 The Cost of Capital Although NCC and other firms try to stay close to their target capital structures, they freque ...

Cost of Debt, rd(1 – T) 227 types used will depend on the specific assets to be financed and on capital market con- ditions as t ...

228 CHAPTER 6 The Cost of Capital Therefore, if NCC can borrow at an interest rate of 11 percent, and if it has a marginal feder ...

Cost of Common Stock, rs 229 Cost of Common Stock, rs Companies can raise common equity in two ways: (1) directly by issuing new ...

230 CHAPTER 6 The Cost of Capital faced with the task of estimating a company’s cost of equity, we generally use all three metho ...

The CAPM Approach 231 Treasury bill rates are more volatile than are Treasury bond rates and, most experts agree, more volatile ...

232 CHAPTER 6 The Cost of Capital Forward-Looking Risk Premiums An alternative to the historical risk premium is to estimate a f ...

The CAPM Approach 233 Given a current 10-year T-bond rate of around 4.24 percent, the estimated forward-looking risk premium fro ...

234 CHAPTER 6 The Cost of Capital First, there is no theoretical guidance as to the correct holding period over which to measure ...

Dividend-Yield-plus-Growth-Rate, or Discounted Cash Flow (DCF), Approach 235 Dividend-Yield-plus-Growth-Rate, or Discounted Cash ...

236 CHAPTER 6 The Cost of Capital the payout ratio: Retention ration (1
Payout ratio). ROE is the return on equity, defined as ...

Comparison of the CAPM, DCF, and Bond-Yeild-plus-Risk-Premium Methods 237 Evaluating the Methods for Estimating Growth Note that ...

238 CHAPTER 6 The Cost of Capital overall average of these three methods is (14.6% 14.5% 14.4%)/3 14.5%. These results are un ...

Composite, or Weighted Average, Cost of Capital, WACC 239 (6-7) Here wd, wps, and wceare the weights used for debt, preferred, a ...

240 CHAPTER 6 The Cost of Capital How does one calculate the weighted average cost of capital? Write out the equation. On what s ...

Adjusting the Cost of Capital for Risk 241 the change in the weights. In Chapter 13 we will discuss this in more depth, and we w ...

242 CHAPTER 6 The Cost of Capital than its typical project? It doesn’t make sense for a company to use its overall cost of capit ...