公司理财(双语)8 Cost of Capital公司理财(双语)8 Cost of Capital.ppt

The Cost of Equity Capital Yield to Maturity Yield to Maturity of a Coupon Bond The Weighted Average Cost of Capital The Weighted Average Cost of Capital is given by: 12.* Remind students that D1 = D0(1+g) You may also want to take this time to remind them that return is comprised of the dividend yield (D1 / P0) and the capital gains yield (g) 12.* 12.* Our historical growth rates are fairly close, so we could feel reasonably comfortable that the market will expect our dividend to grow at around 5.1%. Note that when we are computing our cost of equity, it is important to consider what the market expects our growth rate to be, not what we may know it to be internally. The market price is based on market expectations, not our private information. Another way to estimate the market consensus estimate is to look at analysts’ forecasts and take an average. 12.* Point out that there is no allowance for the uncertainty about the growth rate 12.* You will often hear this referred to as the Capital Asset Pricing Model Approach as well. www: Click on the web surfer to go to . Both betas and 3-month T-bills are available on this site. To get betas, enter a ticker symbol to get the stock quote, then choose key statistics. To get the T-bill rates, click on “Rates” under Bonds on the home page. 12.* 12.* A good example to illustrate how beta estimates can lag changes in the risk of equity, consider Keithley Industries (KEI) which was used as one of the portfolio stocks in the last chapter. In Sept. 2000, (based on calculations on Yahoo) has a beta of .59. Yet, its capital gains return from Sept 27, 1999 – Sept 27, 2000 was about 835%!!!!! Beta has since caught up to some extent and is 2.434 as of November 2004. 12.* Since the two models are reasonably close, we can assume that our cost of equity is probably around 19.5% 12.* Point out that the coupon rate was the cost of debt for the company when the bond was issued. We are interested in the rate we would have to pay on n