HIST 1402 Lecture Notes - Lecture 4: Capital Asset Pricing Model, Retained Earnings, Net Present Value
Document Summary
Wacc = (wd)(rd)(1-t) + (wp)(rp) + (we)(average cost of common equity used) After-tax cost of debt financing rd(1 - t) Cost of preferred stock financing rp = d/pnet rp = d/p0. Cost of retained earnings - cost of internal equity. Capm re = rf + (rm - rf) Risk premium approach re = coupon rate on newly issued debt + risk premium of stocks over bonds. Risk premium of stocks over bonds = expected return on the market. Average of dgm, capm and risk premium approach. Cost of issuing new common stock - cost of external equity. Fca = dgm external equity re - dgm internal equity re. Cost of external equity re = average cost of internal equity + fca. Average cost of equity re = (winternal)(raverage internal) + (wexternal)( rexternal) Find the fv of cf1 to cfn and use the fv and cfo (pv) and n to find the mirr (i).
