COM 240 Chapter Notes - Chapter 14: Dividend Yield, Systematic Risk, Capital Cost

• School: University of Victoria
• Department: Commerce
• Course: COM 240
• Professor: Majerbi Basma

Document Summary

Com 240 - chapter 14: cost of capital: cost of capital: the minimum return that investors expect for providing capital to the company, thus setting the benchmark that a new project has to meet. Cost of capital required return appropriate discount rate. Depends primarily on the use of the funds & the risk associated with that investment. Re ects the required return on the rm"s assets as a whole. Can normally be observed either directly or indirectly, simply as the interest rates in the nancial markets: cost of preferred stock: rp = d/p0. Has a xed dividend paid every period, so a share of preferred stock is essentially a perpetuity. P0 = current price per share g = growth rate. V = combined market value of debt & equity. E = market value of a rm"s equity: (calculated as # of shares x share price)