Aswath Damodaran 332
Disney’s Cost of Capital Schedule
Debt Ratio Cost of Equity Cost of Debt (after-tax) Cost of Capital
0 % 9. 15 % 2. 73 % 9. 15 %
10 % 9. 50 % 2. 73 % 8. 83 %
20 % 9. 95 % 3. 14 % 8. 59 %
30 % 10. 53 % 3. 76 % 8. 50 %
40 % 11. 50 % 8. 25 % 10. 20 %
50 % 13. 33 % 13. 00 % 13. 16 %
60 % 15. 66 % 13. 50 % 14. 36 %
70 % 19. 54 % 13. 86 % 15. 56 %
80 % 27. 31 % 14. 13 % 16. 76 %
90 % 50. 63 % 14. 33 % 17. 96 %
Summarizes the cost of equity and debt from prior pages, as well as the cost of
capital at different debt ratios.
If the objective is to minimize cost of capital, it occurs at 30% debt.
This will maximize firm value, if operating earnings (EBITDA) is unaffected by
changes in leverage and the consequent changes in ratings.
