Page 23 - FINAL CFA I SLIDES JUNE 2019 DAY 10

Session Unit 10:
36. Cost of Capital, p.41

LOS 36.a: Calculate and interpret the weighted average cost of capital (WACC) of a company.
LOS 36.b: Describe how taxes affect the cost of capital from different capital sources., p 41

D + E = Assets

k The rate at which firm can issue new debt also called YTM on existing debt.
d
k (1 – t) The after-tax cost of debt. Here, t is the firm’s marginal tax rate..
d
k ps The cost of preferred stock.
tanties
k ce The cost of common equity –the required rate of return on common stock