Application of Cost of Capital
WACC, Component Costs, Marginal Cost of Capital, and Flotation Costs
About This Course
Course Information
The Cost of Capital is the required return necessary to make a capital budgeting project. The learning outcomes from this course are: Applying the Weighted Average Cost of Capital; Understanding the cost of the individual elements; How to appraise projects and assess the risk profile; Calculate marginal and flotation costs;
Certificate on Completion
This course is made up of videos, questions and additional reading materials, and accounts for 5 units of CPD. One unit is the equivalent of one hour of learning.
Course Sections
This course is made up of the following sections:
- Weighted average cost of capital (video)
- Weighted average cost of capital (quiz)
- Cost of individual elements (video)
- Cost of individual elements (quiz)
- Appraising projects (video)
- Appraising projects (quiz)
- Marginal costs and flotation (video)
- Marginal costs and flotation (quiz)
What You Will Learn
- Calculate the weighted average cost of capital using market value weights for equity, debt, and preferred stock
- Explain the tax shield on debt and why the after-tax cost of debt is used in WACC calculations
- Apply the Capital Asset Pricing Model, dividend discount model, and bond-yield-plus-risk-premium method to estimate the cost of equity
- Describe how to estimate a target capital structure using current structure, trend analysis, or industry averages
- Evaluate when a project-specific cost of capital is needed, using pure-play method and country risk premiums
- Identify break points in the marginal cost of capital schedule and account for flotation costs in project appraisal
Who This Course Is For
- Finance professionals involved in capital budgeting who need to calculate discount rates for project appraisal
- Accountants advising on funding decisions who need to understand the cost implications of different capital structures
- Professionals studying for CFA or similar qualifications covering cost of capital topics
Prerequisites
- A working knowledge of basic financial mathematics, including present value and discounting
- Familiarity with capital budgeting concepts such as NPV is helpful but not required
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