FINE 2000 Chapter Notes - Chapter 13: Free Cash Flow, Financial Analyst, Weighted Arithmetic Mean

• School: York University
• Department: Finance
• Course: FINE 2000
• Professor: Greg Chiykowski

Document Summary

The (cid:396)ate of (cid:396)etu(cid:396)(cid:374) depe(cid:374)ds o(cid:374) the assets" (cid:396)isk. But if geothermal issues only stock no debt then owning the stock means owning the assets. Capital structure a fi(cid:396)(cid:373)"s (cid:373)i(cid:454) of de(cid:271)t a(cid:374)d e(cid:395)uit(cid:455) fi(cid:374)a(cid:374)(cid:272)i(cid:374)g. The company cost of capital is just a weighted average of returns on debt and equity, with weights depending on relative market values of the two securities. The choice of discount rate can be crucial, especially when the project involves large capital expenditures or is long-lived. Recall the company cost of capital is the oppo(cid:396)tu(cid:374)it(cid:455) (cid:272)ost of (cid:272)apital fo(cid:396) the fi(cid:396)(cid:373)"s. Existing assets; we use it to value new assets that have the same risk as the old ones. Thus, the company cost of capital is the minimum acceptable rate of return when the firm invests in average-risk projects. The company cost of capital is the opportunity cost of capital as a whole. Calculating company cost of capital as a weighted average.