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Ch 3

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Gaurav Muliya
Gaurav Muliya

ch 3

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Cost of Capital
In this chapter… ,[object Object],[object Object],[object Object],[object Object]
Cost of Capital… ,[object Object],[object Object],[object Object],[object Object]
[object Object],Investor’s point of view….
Firm’s point of view… ,[object Object]
Capital expenditure point of view… ,[object Object]
[object Object],[object Object],[object Object],[object Object],[object Object],Basic Aspects of Cost of Capital…
[object Object],[object Object],[object Object],Importance of Cost of Capital…
[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],Classification of Cost…
Marginal Cost… ,[object Object],[object Object],[object Object]
Average Cost/ Overall Cost… ,[object Object]
Historic Cost/ Book Cost… ,[object Object],[object Object]
Future Cost… ,[object Object]
Specific Cost… ,[object Object]
Spot Costs… ,[object Object]
Opportunity Cost… ,[object Object]
Explicit Costs… ,[object Object],[object Object]
Implicit Costs… ,[object Object]
Computation of cost of Capital (WACC) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Cost of Equity… ,[object Object],[object Object]
Cost of Retained Earnings (Kre)… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Cost of Equity… ,[object Object],[object Object],[object Object],[object Object],[object Object]
Dividend capitalization approach (D/P) ,[object Object],[object Object]
Dividend capitalization approach (D/P) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Limitations of Dividend capitalization approach (D/P) ,[object Object],[object Object],[object Object],[object Object]
Earnings capitalization approach (E/P) ,[object Object],[object Object],[object Object],[object Object],[object Object]
Earnings capitalization approach (E/P) ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Limitations of Earnings capitalization approach (E/P) ,[object Object],[object Object],[object Object]
Dividend Capitalization + Growth Rate Approach… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Bond Yield + Risk Premium Approach…[BYRP] ,[object Object],[object Object]
Capital Asset Pricing Model Approach [ CAPM] ,[object Object],[object Object]
Capital Asset Pricing Model Approach [ CAPM] ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Assumptions of CAPM… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Assumptions of CAPM… ,[object Object],[object Object],[object Object]
Cost of Preference Shares… ,[object Object],[object Object]
Cost of Irredeemable Preference Share… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],CMP or NP D K p =
Cost of Irredeemable Preference Share… ,[object Object],[object Object],[object Object],CMP or NP D (1 + Dt) K p =
Cost of Redeemable Preference Share… Where: D = Dividend per Share. f = Flotation Cost (Rs.) d = Discount on issue of Preference Share (Rs.) pr = Premium on Redemption of Preference Share (Rs.) pi = Premium on Issue of Preference Share (Rs.) Nm = Term of Preference Shares RV = Redeemable Value of Preference Share NP = Net Proceeds Realized
Cost of Debt… ,[object Object],[object Object]
Cost of Irredeemable Debt… ,[object Object],[object Object],[object Object],[object Object],[object Object],P or NP I Kd =
Cost of Irredeemable Debt… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],P or NP I (1-t) Kd =
Cost of Redeemable Debt… ,[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object],[object Object]
Types of WACC… ,[object Object],[object Object],[object Object]
Marginal Cost of Capital… ,[object Object]
Factors affecting WACC… ,[object Object],[object Object]
Controllable factors… ,[object Object],[object Object],[object Object]
Uncontrollable factors… ,[object Object],[object Object],[object Object]

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Ch 3

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  • 38. Cost of Redeemable Preference Share… Where: D = Dividend per Share. f = Flotation Cost (Rs.) d = Discount on issue of Preference Share (Rs.) pr = Premium on Redemption of Preference Share (Rs.) pi = Premium on Issue of Preference Share (Rs.) Nm = Term of Preference Shares RV = Redeemable Value of Preference Share NP = Net Proceeds Realized
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