Management and Organizational Studies 2310A/B Chapter Notes - Chapter 12: Capital Asset, Weighted Arithmetic Mean, Capital Budgeting

• School: Western University
• Department: Management and Organizational Studies
• Course: Management and Organizational Studies 2310A/B
• Professor: Danny Morrison

Document Summary

12. 1 a first look at the weighted average cost of capital: The firms capital structure: capital: a firms sources of financing- debt, equity, and other securities that it has outstanding, capital structure: the relative proportions of debt, equity, and other securities that a firm has outstanding. Weighted averages and the overall cost of capital (wacc): market value balance sheet: market value of equity+ market value of debt= market value of assets. Wacc equation: the weights are the percentage of the firm value financed by equity, preferred stock and debt, must sum to 100% Cost of equity: cost of equity is the return required by equity investors given the risk of the cash flows from the firm, two major methods: Cost of preferred stock: preferred generally pays a constant dividend every period, dividends are expected to be paid every period forever, preferred stock is an annuity, so we take the annuity formula, rearrange and solve for.