彼得罗斯公司理财Cap013.pptVIP

Risk, Cost of Capital, and Capital Budgeting Key Concepts and Skills Know how to determine a firm’s cost of equity capital Understand the impact of beta in determining the firm’s cost of equity capital Know how to determine the firm’s overall cost of capital Understand the impact of flotation costs on capital budgeting Chapter Outline 13.1 The Cost of Equity Capital 13.2 Estimating the Cost of Equity Capital with the CAPM 13.3 Estimation of Beta 13.4 Beta, Covariance and Correlation 13.5 Determinants of Beta 13.6 Dividend Discount Model 13.7 Cost of Capital for Divisions and Projects 13.8 Cost of Fixed Income Securities 13.9 The Weighted Average Cost of Capital 13.10 Estimating Eastman Chemical’s Cost of Capital 13.11 Flotation Costs and the Weighted Average Cost of Capital Where Do We Stand? Earlier chapters on capital budgeting focused on the appropriate size and timing of cash flows. This chapter discusses the appropriate discount rate when cash flows are risky. 13.1 The Cost of Equity Capital The Cost of Equity Capital From the firm’s perspective, the expected return is the Cost of Equity Capital: Example Suppose the stock of Stansfield Enterprises, a publisher of PowerPoint presentations, has a beta of 2.5. The firm is 100% equity financed. Assume a risk-free rate of 5% and a market risk premium of 10%. What is the appropriate discount rate for an expansion of this firm? Example Suppose Stansfield Enterprises is evaluating the following independent projects. Each costs $100 and lasts one year. Using the SML An all-equity firm should accept projects whose IRRs exceed the cost of equity capital and reject projects whose IRRs fall short of the cost of capital. The Risk-free Rate Treasury securities are close proxies for the risk-free rate. The CAPM is a period model. However, projects are long-lived. So, average period (short-term) rates need to be used. The historic premium of long-term (20-year) rates over short-term rates for government securitie