BUSI 530 Chapter 13: Chapter 13
Document Summary
Chapter 13: the weighted average cost of capital and company valuation. Value of business: value of stock, value of portfolio of all the firm"s debt and equity securities. Risk of business: risk of stock, risk of portfolio. Rate of return on business: rate of return on stock, rate of return on portfolio. Investors" required return from business (company cost of capital) Capital structure: the mix of long term debt and equity financing. The company cost of capital is a weighted average of the returns demanded by debt and equity investors. The weighted average is the expected rate of return investors would demand on a portfolio of all the firm"s outstanding securities . Company cost of capital = weighted average of debt and equity returns. The cost of capital must be based on what investors are actually willing to pay for the company"s outstanding securities, that is, based on the securities" market values .
