Fundamentals of Corporate Finance Third edition Chapter 11 The Cost of Brealey Myers Marcus Capital ndamentals of Corporate Finan Brealey Myers Marcus slides by Matthew will IrwinMcGraw-Hill CThe McGraw-Hill Companies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 11- 1 Irwin/McGraw-Hill Chapter 11 Fundamentals of Corporate Finance Third Edition The Cost of Capital Brealey Myers Marcus slides by Matthew Will Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc.,2001
11-2 Topics Covered gEothermal,s Cost of Capital S Weighted Average Cost of Capital (WACC) CApital Structure REquired rates of return SBig Oils WacC INterpreting wacc FLotation Costs Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 11- 2 Irwin/McGraw-Hill Topics Covered Geothermal’s Cost of Capital Weighted Average Cost of Capital (WACC) Capital Structure Required Rates of Return Big Oil’s WACC Interpreting WACC Flotation Costs
11-3 Cost of Capital Cost of Capital- The return the firms investors could expect to earn if they invested in securities with comparable degrees of risk Capital Structure-The firms mix of long term financing and equity financing Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 11- 3 Irwin/McGraw-Hill Cost of Capital Cost of Capital - The return the firm’s investors could expect to earn if they invested in securities with comparable degrees of risk. Capital Structure - The firm’s mix of long term financing and equity financing
11-4 Cost of Capital Example Geothermal Inc has the following structure. Given that geothermal pays 8% for debt and 14% for equity, what is the Company cost of Capital? Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 11- 4 Irwin/McGraw-Hill Cost of Capital Example Geothermal Inc. has the following structure. Given that geothermal pays 8% for debt and 14% for equity, what is the Company Cost of Capital?
11-5 Cost of Capital Example-Geothermal Inc has the following structure. Given that geothermal pays 8%for debt and 14% for equity, what is the Company Cost of Capital? Market Value Debt $194 30% Market Value Equity $453 70% Market Value Assets $647 100% Irwin/McGraw-Hill CThe McGraw-Hill Commpanies, Inc, 2001
©The McGraw-Hill Companies, Inc.,2001 11- 5 Irwin/McGraw-Hill Cost of Capital Example - Geothermal Inc. has the following structure. Given that geothermal pays 8% for debt and 14% for equity, what is the Company Cost of Capital? Market Value Assets $647 100% Market Value Equity $453 70% Market Value Debt $194 30%