财务管理基础financialmanagement清华大学pp15.pptVIP

Chapter 15 Required Returns and the Cost of Capital Explain how a firm creates value and identify the key sources of value creation. Define the overall “cost of capital” of the firm. Calculate the costs of the individual components of a firm’s cost of capital - cost of debt, cost of preferred stock, and cost of equity. Explain and use alternative models to determine the cost of equity, including the dividend discount approach, the capital-asset pricing model (CAPM) approach, and the before-tax cost of debt plus risk premium approach. Calculate the firm’s weighted average cost of capital (WACC) and understand its rationale, use, and limitations. Explain how the concept of economic Value added (EVA) is related to value creation and the firm’s cost of capital. Understand the capital-asset pricing models role in computing project-specific and group-specific required rates of return. After Studying Chapter 15, you should be able to: Creation of Value Overall Cost of Capital of the Firm Project-Specific Required Rates Group-Specific Required Rates Total Risk Evaluation Required Returns and the Cost of Capital Growth phase of product cycle Barriers to competitive entry Other -- e.g., patents, temporary monopoly power, oligopoly pricing Cost Marketing and price Perceived quality Superior organizational capability Industry Attractiveness Competitive Advantage Key Sources of Value Creation Cost of Capital is the required rate of return on the various types of financing. The overall cost of capital is a weighted average of the individual required rates of return (costs). Overall Cost of Capital of the Firm Type of Financing Mkt Val Weight Long-Term Debt $ 35M 35% Preferred Stock $ 15M 15% Common Stock Equity $ 50M 50% $ 100M 100% Market Value of Long-Term Financing Cost of Debt is the required rate of return on investment of the lenders of a company. ki = kd ( 1 – T ) P0 = Ij + Pj (1 + kd)j S n j=1 Cost of Debt Assume that