Cost of Capital Workbook

Cost of Capital Workbook......Page 3
About the Authors......Page 7
Contents......Page 9
List of Exhibits......Page 11
Preface......Page 13
Acknowledgments......Page 15
Notation System Used in This Book......Page 17
Basic Formulas......Page 21
Part I: Cost of Capital Basics......Page 27
1. Defining Cost of Capital......Page 29
2. Introduction to Cost of Capital Applications: Valuation and Project Selection......Page 31
3. Net Cash Flow: The Preferred Measure of Return......Page 33
4. Discounting versus Capitalizing......Page 36
5. Relationship between Risk and the Cost of Capital......Page 40
6. Cost Components of a Company’s Capital Structure......Page 42
7. Weighted Average Cost of Capital......Page 44
Part II: Estimating the Cost of Equity Capital......Page 47
8. Build-up Models......Page 49
9. Capital Asset Pricing Model......Page 52
10. Proper Use of Betas......Page 56
11. Size Effect......Page 59
12. Discounted Cash Flow Method of Estimating Cost of Capital......Page 61
13. Using Ibbotson Associates Cost of Capital Data......Page 63
14. Arbitrage Pricing Model......Page 78
Part III: Other Topics Related to Cost of Capital......Page 79
15. Minority versus Control Implications of Cost of Capital Data......Page 81
16. Handling the Discount for Lack of Marketability......Page 84
17. How Cost of Capital Relates to the Excess Earnings Method of Valuation......Page 87
18. Common Errors in Estimation and Use of Cost of Capital......Page 89
19. Cost of Capital in the Courts......Page 92
20. Cost of Capital in Ad Valorem Taxation......Page 94
21. Capital Budgeting and Feasibility Studies......Page 96
22. Central Role of Cost of Capital in Economic Value Added......Page 98
Appendix: Data Resources......Page 100
Part I: Cost of Capital Basics......Page 103
1. Defining Cost of Capital......Page 105
2. Introduction to Cost of Capital Applications: Valuation and Project Selection......Page 106
3. Net Cash Flow: The Preferred Measure of Return......Page 108
4. Discounting versus Capitalizing......Page 110
5. Relationship between Risk and the Cost of Capital......Page 113
6. Cost Components of a Company’s Capital Structure......Page 114
7. Weighted Average Cost of Capital......Page 115
Part II: Estimating the Cost of Equity Capital......Page 117
8. Build-up Models......Page 119
9. Capital Asset Pricing Model......Page 121
10. Proper Use of Betas......Page 123
11. Size Effect......Page 125
12. Discounted Cash Flow Method of Estimating Cost of Capital......Page 127
13. Using Ibbotson Associates Cost of Capital Data......Page 129
14. Arbitrage Pricing Model......Page 134
Part III: Other Topics Related to Cost of Capital......Page 135
15. Minority versus Control Implications of Cost of Capital Data......Page 137
16. Handling the Discount for Lack of Marketability......Page 138
17. How Cost of Capital Relates to the Excess Earnings Method of Valuation......Page 139
18. Common Errors in Estimation and Use of Cost of Capital......Page 141
19. Cost of Capital in the Courts......Page 142
20. Cost of Capital in Ad Valorem Taxation......Page 143
21. Capital Budgeting and Feasibility Studies......Page 144
22. Central Role of Cost of Capital in Economic Value Added......Page 145
Appendix: Data Resources......Page 146
International Glossary of Business Valuation Terms......Page 147
CPE Self-study Examination......Page 157
Index......Page 165