HTA 602 Lecture Notes - Lecture 10: Capital Asset Pricing Model, Retained Earnings, Capital Budgeting

• School: Ryerson University
• Department: Hospitality and Tourism Management
• Course: HTA 602
• Professor: Bernard Mc Evoy

Document Summary

K(cid:374)o(cid:449) ho(cid:449) to dete(cid:396)(cid:373)i(cid:374)e a fi(cid:396)(cid:373)"s (cid:272)ost of e(cid:395)uit(cid:455) (cid:272)apital. K(cid:374)o(cid:449) ho(cid:449) to dete(cid:396)(cid:373)i(cid:374)e a fi(cid:396)(cid:373)"s (cid:272)ost of de(cid:271)t. K(cid:374)o(cid:449) ho(cid:449) to dete(cid:396)(cid:373)i(cid:374)e a fi(cid:396)(cid:373)"s o(cid:448)e(cid:396)all (cid:272)ost of (cid:272)apital a(cid:374)d ho(cid:449) to use it to (cid:448)alue a (cid:272)o(cid:373)pa(cid:374)(cid:455) We know that the return earned on assets depends on the risk of those assets. The return to an investor is the same as the cost to the company. Our cost of capital provides us with an indication of how the market views the risk of our assets. Knowing our cost of capital can also help us determine our required return for capital budgeting projects. The required return is the same as the appropriate discount rate and is based on the risk of the cash flows. We need to know the required return for an investment before we can compute the npv and make a decision about whether or not to take the investment.