The Cost of Capital Chapter 14

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Copyright © 2011 Pearson Prentice Hall. All rights reserved.14-28
Step 1: Picture the Problem• We are given the following:– Price of common stock (P cs ) = $10.09– Growth rate of dividends (g) = 5% and 7.81%– Dividend (D 0 ) = $0.47 per share– Cost of equity is given by dividend yield +growth rate.Copyright © 2011 Pearson Prentice Hall. All rights reserved.14-29
Page 1 and 2: Chapter 14The Cost ofCapitalCopyrig
Page 3 and 4: Learning Objectives1. Understand th
Page 5 and 6: The Cost of Capital: An Overview•
Page 7 and 8: After-Tax WACC equation (WACC AT )C
Page 9 and 10: 3-Step Procedure to Estimate Firm W
Page 11 and 12: Determining Firm’s Capital Struct
Page 13 and 14: Example 1 Continued (Info)Templeton
Page 15 and 16: Example 1 - Solution to WACC ATCopy
Page 17 and 18: Before MV Weight AT Rate W*RDebt 10
Page 19 and 20: The Cost of Debt• The cost of deb
Page 21 and 22: The Cost of Debt - Other Approaches
Page 23 and 24: Copyright © 2011 Pearson Prentice
Page 25 and 26: Example: Estimate Cost of Preferred
Page 27: The Dividend Growth Model - Discoun
Page 31 and 32: Step 3: Solve• At growth rate of
Page 33 and 34: Estimating the Rate of Growth, g•
Page 35 and 36: Pros and Cons of the DividendGrowth
Page 37 and 38: Advantages of the CAPM approach1. T
Page 39: Example: Estimating Cost of CommonE

The Cost of Capital Chapter 14

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