Introduction To Corporate Finance Module 5 Cost of Capital

Описание: 5.1 Introduction
The cost of capital is a fundamental concept in corporate finance representing the minimum return a company must earn on its investments to satisfy its investors, creditors, and maintain its market value. It acts as the hurdle rate or discount rate in capital budgeting decisions. Understanding and accurately estimating the cost of capital ensures firms make investment choices that enhance shareholder wealth.
5.2 Components of Cost of Capital
The cost of capital comprises the costs of the various sources of financing a company uses:
Cost of Debt (KdK_d): The effective rate the company pays on its borrowed funds.


Cost of Equity (KeK_e): The return required by equity investors.


Cost of Preferred Stock (KpsK_{ps}): The dividend yield required by preferred shareholders.