BU393 Chapter Notes - Chapter 11: Preferred Stock, Capital Asset Pricing Model, Capital Structure
Document Summary
Net present value: the sum or net of all cash flows from a project. = net of the present value of the cash inflows - net of the present value of the cash outflows. Internal rate of return: discount rate that sets the present value of the cash inflows equal to the present value of the cash outflows. It is the discount rate that sets npv to 0: cash outflows = cash inflows. Required rate of return: a specified return required each period by investors for a given level of risk. Cost of capital: the cost, expressed as a percentage rate that a firm must pay investors for the use of debt and equity financing. Wacc: cost of debt: interest rate (ytm) on new borrowing, for a company cost of debt is tax deductible. So you there need to include that in the calculation: after-tax cost of debt= kd(1-t, cost of preferred shares, dividends are paid instead of interest.
