Difference between revisions of "Cost of capital"

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-The '''weighted average cost of capital''' is used by corporations to determine a [[discount rate]] for projects that will maintain their [[stock price]] and [[debt coverage]].
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-In simple terms it is the company's expected return on [[equity]] averaged with its [[cost of debt]] weighted by total [[debt]] and total equity.  The cost of debt is adjusted by the company's [[tax rate]] as debt interest is tax-deductible whereas [[dividends]] are not.
-The calculation becomes complex when considering hybrid instruments such as preferred shares, synthetic leases, etc.
-If a company undertakes a project that returns the weighted average cost of capital, its [[stock]] price and cost of debt should remain the same.
-[[category:economics]][[category:finance]][[Category:Business]]

Revision as of 21:13, May 28, 2008