F9-chapter 15.pdf

195 中国上海市东体育会路 390 号 招生办：021-6199 9158 教务处：021-6052 1861 官方认可黄金级培训机构，数千学员一致选择 http:// A Chapter15 15. The Cost of Capital Chapter Guide F1 Source of finance and their relative costs a) Describe the relative risk-return relationship and describe costs of equity and debt. b) Describe the creditor hierarchy and its connection with the relative costs fo sources of finance F2. Estimating the cost of capital a) Apply the dividend growth model and discuss its weaknesses. b) Describe and explain the assumptions and components of the CAPM. c) Explain and discuss the advantages and disadvantages of the CAPM F3. Estimating the cost of debt and other capital instruments Calculate the cost of capital on a wide range of capital instruments, including: a) irredeemable debt b) redeemable debt c) convertible debt d) preference shares e) bank debt F4. Estimating the overall cost of capital a) Distinguish between average and marginal costs of capital b) Calculate the weighted average cost of capital (WACC) using book value and market value weightings. Chapter Overview 196 中国上海市东体育会路 390 号 招生办：021-6199 9158 教务处：021-6052 1861 官方认可黄金级培训机构，数千学员一致选择 http:// A Cost of Equity Cost of Debt DGM CAPM Irredeemable Redeemable Convertible Preference share Bank loan WACC 197 中国上海市东体育会路 390 号 招生办：021-6199 9158 教务处：021-6052 1861 官方认可黄金级培训机构，数千学员一致选择 http:// A ? It’s the minimum return that investors require, or 1.1 Cost of capital The cost of capital is an opportunity cost of finance, because ? Thecompany should make on its investments to earn the cash flows to pay fund providers Cost of capital has three elements ? Risk free rate of return ? Premium of business risk ? Premium for financial risk Cost of Capital = Risk free rate of return + Premium of business risk + Premium of financial risk Creditors - fixed charge Creditors - floating charge Uns