CHAPTER9TheCostofCapital-Collegeof.pptVIP

* * * * * * * * * * * * * * * * * * * * * * * * 10-* 10-* CHAPTER 10The Cost of Capital Sources of capital Component costs WACC What sources of long-term capital do firms use? Long-Term Capital Long-Term Debt Preferred Stock Common Stock Retained Earnings New Common Stock Calculating the weighted average cost of capital WACC wdrd 1-T + wprp + wcrs The w’s refer to the firm’s capital structure weights. The r’s refer to the cost of each component. Should our analysis focus on before-tax or after-tax capital costs? Stockholders focus on A-T CFs. Therefore, we should focus on A-T capital c