Chapter 10
Chapter 10
Chapter 10
Sources of capital
Component costs
WACC
Adjusting for flotation costs
Adjusting for risk
10-1
10-2
10-4
10-5
10-6
INPUTS
30
N
OUTPUT
I/YR
-1153.72
60
1000
PV
PMT
FV
5
10-8
10-11
preferred dividend.
10-12
10-15
DCF:
rs = (D1 / P0) + g
Own-Bond-Yield-Plus-Risk-Premium:
rs = rd + RP
10-16
10-17
10-20
Estimate
14.2%
13.8%
14.0%
14.0%
10-22
D0 (1 g)
re
g
P0 (1- F)
$4.19(1.05
)
5.0%
$50(1- 0.15)
$4.3995
5.0%
$42.50
15.4%
10-24
Flotation costs
10-26
Market conditions.
The firms capital structure and
dividend policy.
The firms investment policy.
Firms with riskier projects
generally have a higher WACC.
10-27