Determining the Cost of CapitBEGINNING+OF-CHAPTER QUESTIONS
sd the chal, consider how you would ale and make vale weigh and the rol of
apts: Rae, you shuld we hemo get ae
yu should beable a give at asp _mting he cso ety al the CAPM, 0 DCE,
equations, and you shod be sland (the bond ye plu premaan, Whe
iloiteyouranower Weise Neanowers robod bet thn the alco does te
‘nceing the odel and working ough t 5. How do Maton costa aet Ie onto capital
25 the fm raises lager and ager arounis of
Capital and how do lettin cost aft the ay
3 company ass capital Fam ea oye?
6. Fora ghen fir, why does WACC change ove
tanger in the WACC. and thus determine
‘any one tne, shuld the same WACC be usd
tow cch ta company api Deng
som Hpac aerate ta
a Sing
cial
a
corny
oe
inwhy thse dit.
oir eta eat mis
(laa anaes
In Chapter 1, we tld you that manages should capital ACC. Inthe previous chapters, we
jet make thelr more vlusle and that _ examined the majr sources of fnancing tock
thevalc off determined by thes, tin- bonds an prefered oct) on an Indiv
ng an sk of fs free cash lows FCP) In par- basis, In this chapter we put thse pieces
icon afi’ ale the present valve of ts together and estimate the WACC
CFs, kcunted athe weighted average cet
fer,
+ WACO10.1 THE WEIGHTED AVERAGE COST OF CAPITAL
SelkTeer Questions
10.2 COST OF DEBT, rg(1 — T)
wnat 9 te terms “cost of capital” and “weighted aveege coup
pial” mean? osible to finances company ent
tomo equ panies euply several ype of capita
‘ania components, with common and prefered werk al
three mos frequen wed types, Some companies, epcialy thos tn fogs
fnnde lege amounts of shortscrm debe inthe capital uctres- A
components have one feature in cotnnon: The inves wh provid
woul be the rege rate of eur om sty. Homes
xt types of expt and, doe wo diferent thse ferent css
ferent required atesof return. The egucd ite of return on cnc capt compo
‘scale is component cox, andthe eo expt sed to anaes capital body