The Cost of Capital (Part 1) // Financial Management // Elvy Razonales, CPA

Описание: Walt Disney Co. (DIS) is one of the world’s most successful companies. Despite a tough economic environment over the past few years, Disney’s managers have worked hard to create value for shareholders by investing in assets that earn more than the cost of the capital used to acquire them.

For example, if a project earns 20%, but the capital invested in it costs only 10%, taking on the project will increase the firm’s value and thus its stock price.

Capital is obtained in three primary forms: debt, preferred stock, and common equity, with equity acquired by retaining earnings and issuing new stock.

The investors who provide capital to Disney expect to earn at least their required rate of return on that capital, and the required return represents the firm’s cost of capital.

A variety of factors influence the cost of capital. Some—including interest rates, state and federal tax policies, and general economic conditions—are outside the firm’s control.

However, the firm’s decisions regarding how it raises capital and how it invests those funds also have a profound effect on its cost of capital.


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