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class="vector-toc-numb">2</span> <span>Example</span> </div> </a> <ul id="toc-Example-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Cost_of_debt" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Cost_of_debt"> <div class="vector-toc-text"> <span class="vector-toc-numb">3</span> <span>Cost of debt</span> </div> </a> <ul id="toc-Cost_of_debt-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Cost_of_equity" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Cost_of_equity"> <div class="vector-toc-text"> <span class="vector-toc-numb">4</span> <span>Cost of equity</span> </div> </a> <button aria-controls="toc-Cost_of_equity-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Cost of equity subsection</span> </button> <ul id="toc-Cost_of_equity-sublist" class="vector-toc-list"> <li id="toc-Expected_return" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Expected_return"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.1</span> <span>Expected return</span> </div> </a> <ul id="toc-Expected_return-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Comments" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Comments"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.2</span> <span>Comments</span> </div> </a> <ul id="toc-Comments-sublist" class="vector-toc-list"> <li id="toc-Cost_of_retained_earnings/cost_of_internal_equity" class="vector-toc-list-item vector-toc-level-3"> <a class="vector-toc-link" href="#Cost_of_retained_earnings/cost_of_internal_equity"> <div class="vector-toc-text"> <span class="vector-toc-numb">4.2.1</span> <span>Cost of retained earnings/cost of internal equity</span> </div> </a> <ul id="toc-Cost_of_retained_earnings/cost_of_internal_equity-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> </ul> </li> <li id="toc-Weighted_average_cost_of_capital" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Weighted_average_cost_of_capital"> <div class="vector-toc-text"> <span class="vector-toc-numb">5</span> <span>Weighted average cost of capital</span> </div> </a> <ul id="toc-Weighted_average_cost_of_capital-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Factors_that_can_affect_cost_of_capital" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Factors_that_can_affect_cost_of_capital"> <div class="vector-toc-text"> <span class="vector-toc-numb">6</span> <span>Factors that can affect cost of capital</span> </div> </a> <button aria-controls="toc-Factors_that_can_affect_cost_of_capital-sublist" class="cdx-button cdx-button--weight-quiet cdx-button--icon-only vector-toc-toggle"> <span class="vector-icon mw-ui-icon-wikimedia-expand"></span> <span>Toggle Factors that can affect cost of capital subsection</span> </button> <ul id="toc-Factors_that_can_affect_cost_of_capital-sublist" class="vector-toc-list"> <li id="toc-Capital_structure" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Capital_structure"> <div class="vector-toc-text"> <span class="vector-toc-numb">6.1</span> <span>Capital structure</span> </div> </a> <ul id="toc-Capital_structure-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Current_dividend_policy" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Current_dividend_policy"> <div class="vector-toc-text"> <span class="vector-toc-numb">7</span> <span>Current dividend policy</span> </div> </a> <button aria-controls="toc-Current_dividend_policy-sublist" class="cdx-button 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</ul> </li> <li id="toc-Interest_rates" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Interest_rates"> <div class="vector-toc-text"> <span class="vector-toc-numb">7.3</span> <span>Interest rates</span> </div> </a> <ul id="toc-Interest_rates-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Accounting_information" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Accounting_information"> <div class="vector-toc-text"> <span class="vector-toc-numb">7.4</span> <span>Accounting information</span> </div> </a> <ul id="toc-Accounting_information-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-Breakpoint_of_marginal_cost_of_capital" class="vector-toc-list-item vector-toc-level-2"> <a class="vector-toc-link" href="#Breakpoint_of_marginal_cost_of_capital"> <div class="vector-toc-text"> <span class="vector-toc-numb">7.5</span> <span>Breakpoint of marginal cost of capital</span> </div> </a> <ul id="toc-Breakpoint_of_marginal_cost_of_capital-sublist" class="vector-toc-list"> </ul> </li> </ul> </li> <li id="toc-Modigliani–Miller_theorem" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#Modigliani–Miller_theorem"> <div class="vector-toc-text"> <span class="vector-toc-numb">8</span> <span>Modigliani–Miller theorem</span> </div> </a> <ul id="toc-Modigliani–Miller_theorem-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-See_also" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#See_also"> <div class="vector-toc-text"> <span class="vector-toc-numb">9</span> <span>See also</span> </div> </a> <ul id="toc-See_also-sublist" class="vector-toc-list"> </ul> </li> <li id="toc-References" class="vector-toc-list-item vector-toc-level-1 vector-toc-list-item-expanded"> <a class="vector-toc-link" href="#References"> <div class="vector-toc-text"> <span 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Available in 19 languages" > <label id="p-lang-btn-label" for="p-lang-btn-checkbox" class="vector-dropdown-label cdx-button cdx-button--fake-button cdx-button--fake-button--enabled cdx-button--weight-quiet cdx-button--action-progressive mw-portlet-lang-heading-19" aria-hidden="true" ><span class="vector-icon mw-ui-icon-language-progressive mw-ui-icon-wikimedia-language-progressive"></span> <span class="vector-dropdown-label-text">19 languages</span> </label> <div class="vector-dropdown-content"> <div class="vector-menu-content"> <ul class="vector-menu-content-list"> <li class="interlanguage-link interwiki-ar mw-list-item"><a href="https://ar.wikipedia.org/wiki/%D8%AA%D9%83%D9%84%D9%81%D8%A9_%D8%B1%D8%A3%D8%B3_%D8%A7%D9%84%D9%85%D8%A7%D9%84" title="تكلفة رأس المال – Arabic" lang="ar" hreflang="ar" data-title="تكلفة رأس المال" data-language-autonym="العربية" data-language-local-name="Arabic" class="interlanguage-link-target"><span>العربية</span></a></li><li class="interlanguage-link interwiki-ca mw-list-item"><a href="https://ca.wikipedia.org/wiki/Cost_de_capital" title="Cost de capital – Catalan" lang="ca" hreflang="ca" data-title="Cost de capital" data-language-autonym="Català" data-language-local-name="Catalan" class="interlanguage-link-target"><span>Català</span></a></li><li class="interlanguage-link interwiki-de mw-list-item"><a href="https://de.wikipedia.org/wiki/Kapitalkosten" title="Kapitalkosten – German" lang="de" hreflang="de" data-title="Kapitalkosten" data-language-autonym="Deutsch" data-language-local-name="German" class="interlanguage-link-target"><span>Deutsch</span></a></li><li class="interlanguage-link interwiki-et mw-list-item"><a href="https://et.wikipedia.org/wiki/Kapitali_kulukuse_m%C3%A4%C3%A4r" title="Kapitali kulukuse määr – Estonian" lang="et" hreflang="et" data-title="Kapitali kulukuse määr" data-language-autonym="Eesti" data-language-local-name="Estonian" class="interlanguage-link-target"><span>Eesti</span></a></li><li class="interlanguage-link interwiki-el mw-list-item"><a href="https://el.wikipedia.org/wiki/%CE%9A%CF%8C%CF%83%CF%84%CE%BF%CF%82_%CE%BA%CE%B5%CF%86%CE%B1%CE%BB%CE%B1%CE%AF%CE%BF%CF%85" title="Κόστος κεφαλαίου – Greek" lang="el" hreflang="el" data-title="Κόστος κεφαλαίου" data-language-autonym="Ελληνικά" data-language-local-name="Greek" class="interlanguage-link-target"><span>Ελληνικά</span></a></li><li class="interlanguage-link interwiki-es mw-list-item"><a href="https://es.wikipedia.org/wiki/Coste_de_capital" title="Coste de capital – Spanish" lang="es" hreflang="es" data-title="Coste de capital" data-language-autonym="Español" data-language-local-name="Spanish" class="interlanguage-link-target"><span>Español</span></a></li><li class="interlanguage-link interwiki-eu mw-list-item"><a href="https://eu.wikipedia.org/wiki/Kapital-kostu" title="Kapital-kostu – Basque" lang="eu" hreflang="eu" data-title="Kapital-kostu" data-language-autonym="Euskara" data-language-local-name="Basque" class="interlanguage-link-target"><span>Euskara</span></a></li><li class="interlanguage-link interwiki-fa mw-list-item"><a href="https://fa.wikipedia.org/wiki/%D9%87%D8%B2%DB%8C%D9%86%D9%87_%D8%B3%D8%B1%D9%85%D8%A7%DB%8C%D9%87" title="هزینه سرمایه – Persian" lang="fa" hreflang="fa" data-title="هزینه سرمایه" data-language-autonym="فارسی" data-language-local-name="Persian" class="interlanguage-link-target"><span>فارسی</span></a></li><li class="interlanguage-link interwiki-hr mw-list-item"><a href="https://hr.wikipedia.org/wiki/Tro%C5%A1ak_kapitala" title="Trošak kapitala – Croatian" lang="hr" hreflang="hr" data-title="Trošak kapitala" data-language-autonym="Hrvatski" data-language-local-name="Croatian" class="interlanguage-link-target"><span>Hrvatski</span></a></li><li class="interlanguage-link interwiki-it mw-list-item"><a href="https://it.wikipedia.org/wiki/Costo_del_capitale" title="Costo del capitale – Italian" lang="it" hreflang="it" data-title="Costo del capitale" data-language-autonym="Italiano" data-language-local-name="Italian" class="interlanguage-link-target"><span>Italiano</span></a></li><li class="interlanguage-link interwiki-lt mw-list-item"><a href="https://lt.wikipedia.org/wiki/Skolinamasis_kapitalas" title="Skolinamasis kapitalas – Lithuanian" lang="lt" hreflang="lt" data-title="Skolinamasis kapitalas" data-language-autonym="Lietuvių" data-language-local-name="Lithuanian" class="interlanguage-link-target"><span>Lietuvių</span></a></li><li class="interlanguage-link interwiki-ja mw-list-item"><a href="https://ja.wikipedia.org/wiki/%E8%B3%87%E6%9C%AC%E3%82%B3%E3%82%B9%E3%83%88" title="資本コスト – Japanese" lang="ja" hreflang="ja" data-title="資本コスト" data-language-autonym="日本語" data-language-local-name="Japanese" class="interlanguage-link-target"><span>日本語</span></a></li><li class="interlanguage-link interwiki-no mw-list-item"><a href="https://no.wikipedia.org/wiki/Kapitalkostnad" title="Kapitalkostnad – Norwegian Bokmål" lang="nb" hreflang="nb" data-title="Kapitalkostnad" data-language-autonym="Norsk bokmål" data-language-local-name="Norwegian Bokmål" class="interlanguage-link-target"><span>Norsk bokmål</span></a></li><li class="interlanguage-link interwiki-pl mw-list-item"><a href="https://pl.wikipedia.org/wiki/Koszt_kapita%C5%82u" title="Koszt kapitału – Polish" lang="pl" hreflang="pl" data-title="Koszt kapitału" data-language-autonym="Polski" data-language-local-name="Polish" class="interlanguage-link-target"><span>Polski</span></a></li><li class="interlanguage-link interwiki-pt mw-list-item"><a href="https://pt.wikipedia.org/wiki/Custo_do_capital" title="Custo do capital – Portuguese" lang="pt" hreflang="pt" data-title="Custo do capital" data-language-autonym="Português" data-language-local-name="Portuguese" class="interlanguage-link-target"><span>Português</span></a></li><li class="interlanguage-link interwiki-ru mw-list-item"><a href="https://ru.wikipedia.org/wiki/%D0%A1%D1%82%D0%BE%D0%B8%D0%BC%D0%BE%D1%81%D1%82%D1%8C_%D0%BA%D0%B0%D0%BF%D0%B8%D1%82%D0%B0%D0%BB%D0%B0" title="Стоимость капитала – Russian" lang="ru" hreflang="ru" data-title="Стоимость капитала" data-language-autonym="Русский" data-language-local-name="Russian" class="interlanguage-link-target"><span>Русский</span></a></li><li class="interlanguage-link interwiki-sv mw-list-item"><a href="https://sv.wikipedia.org/wiki/Avkastningskrav" title="Avkastningskrav – Swedish" lang="sv" hreflang="sv" data-title="Avkastningskrav" data-language-autonym="Svenska" data-language-local-name="Swedish" class="interlanguage-link-target"><span>Svenska</span></a></li><li class="interlanguage-link interwiki-vi mw-list-item"><a href="https://vi.wikipedia.org/wiki/Chi_ph%C3%AD_s%E1%BB%AD_d%E1%BB%A5ng_v%E1%BB%91n" title="Chi phí sử dụng vốn – Vietnamese" lang="vi" hreflang="vi" data-title="Chi phí sử dụng vốn" data-language-autonym="Tiếng Việt" 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class="vector-body" aria-labelledby="firstHeading" data-mw-ve-target-container> <div class="vector-body-before-content"> <div class="mw-indicators"> </div> <div id="siteSub" class="noprint">From Wikipedia, the free encyclopedia</div> </div> <div id="contentSub"><div id="mw-content-subtitle"></div></div> <div id="mw-content-text" class="mw-body-content"><div class="mw-content-ltr mw-parser-output" lang="en" dir="ltr"><div class="shortdescription nomobile noexcerpt noprint searchaux" style="display:none">Cost of a company's funds</div> <style data-mw-deduplicate="TemplateStyles:r1129693374">.mw-parser-output .hlist dl,.mw-parser-output .hlist ol,.mw-parser-output .hlist ul{margin:0;padding:0}.mw-parser-output .hlist dd,.mw-parser-output .hlist dt,.mw-parser-output .hlist li{margin:0;display:inline}.mw-parser-output .hlist.inline,.mw-parser-output .hlist.inline dl,.mw-parser-output .hlist.inline ol,.mw-parser-output .hlist.inline ul,.mw-parser-output .hlist dl dl,.mw-parser-output .hlist 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of a series on</td></tr><tr><th class="sidebar-title-with-pretitle"><a href="/wiki/Financial_market" title="Financial market">Financial markets</a></th></tr><tr><td class="sidebar-image"><span class="notpageimage" typeof="mw:File"><a href="/wiki/File:Philippine-stock-market-board.jpg" class="mw-file-description"><img alt="Looking up at a computerized stocks-value board at the Philippine Stock Exchange" src="//upload.wikimedia.org/wikipedia/commons/thumb/d/d7/Philippine-stock-market-board.jpg/200px-Philippine-stock-market-board.jpg" decoding="async" width="200" height="150" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/commons/thumb/d/d7/Philippine-stock-market-board.jpg/300px-Philippine-stock-market-board.jpg 1.5x, //upload.wikimedia.org/wikipedia/commons/thumb/d/d7/Philippine-stock-market-board.jpg/400px-Philippine-stock-market-board.jpg 2x" data-file-width="640" data-file-height="480" /></a></span></td></tr><tr><td class="sidebar-above" style="padding-bottom:0.7em;"> <ul><li><a href="/wiki/Market_(economics)" title="Market (economics)">Public market</a></li> <li><a href="/wiki/Exchange_(organized_market)" title="Exchange (organized market)">Exchange</a> <b>·</b> <a href="/wiki/Security_(finance)" title="Security (finance)">Securities</a></li></ul></td></tr><tr><th class="sidebar-heading" style="background:#ddddff;"> <a href="/wiki/Bond_market" title="Bond market">Bond market</a></th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <ul><li><a href="/wiki/Bond_valuation" title="Bond valuation">Bond valuation</a></li> <li><a href="/wiki/Corporate_bond" title="Corporate bond">Corporate bond</a></li> <li><a href="/wiki/Fixed_income" title="Fixed income">Fixed income</a></li> <li><a href="/wiki/Government_bond" title="Government bond">Government bond</a></li> <li><a href="/wiki/High-yield_debt" title="High-yield debt">High-yield debt</a></li> <li><a href="/wiki/Municipal_bond" title="Municipal bond">Municipal bond</a></li> <li><br /><a href="/wiki/Securitization" title="Securitization">Securitization</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#ddddff;"> <a href="/wiki/Stock_market" title="Stock market">Stock market</a></th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <ul><li><a href="/wiki/Common_stock" title="Common stock">Common stock</a></li> <li><a href="/wiki/Growth_stock" title="Growth stock">Growth stock</a></li> <li><a href="/wiki/Preferred_stock" title="Preferred stock">Preferred stock</a></li> <li><a href="/wiki/Registered_share" title="Registered share">Registered share</a></li> <li><a href="/wiki/Shareholder" title="Shareholder">Shareholder</a></li> <li><a href="/wiki/Stock" title="Stock">Stock</a></li> <li><a href="/wiki/Stockbroker" title="Stockbroker">Stockbroker</a></li> <li><a href="/wiki/Stock_certificate" title="Stock certificate">Stock certificate</a></li> <li><a href="/wiki/Stock_exchange" title="Stock exchange">Stock exchange</a></li> <li><a href="/wiki/Watered_stock" title="Watered stock">Watered stock</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#ddddff;"> Other markets</th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <div style="display:inline-block; padding:0.2em 0.4em; line-height:1.2em; line-height:1.25em;"><a href="/wiki/Derivatives_market" title="Derivatives market">Derivatives</a> <div class="hlist"><ul><li>(<a href="/wiki/Credit_derivative" title="Credit derivative">Credit derivative</a></li><li><a href="/wiki/Futures_exchange" title="Futures exchange">Futures exchange</a></li><li><a href="/wiki/Hybrid_security" title="Hybrid security">Hybrid security</a>)</li></ul></div> </div> <div style="display:inline-block; padding:0.2em 0.4em; line-height:1.2em; line-height:1.25em;padding-bottom:0.25em;"><a href="/wiki/Foreign_exchange_market" title="Foreign exchange market">Foreign exchange</a> <div class="hlist"><ul><li>(<a href="/wiki/Currency" title="Currency">Currency</a></li><li><a href="/wiki/Exchange_rate" title="Exchange rate">Exchange rate</a>)</li></ul></div> </div> <ul><li><a href="/wiki/Commodity_market" title="Commodity market">Commodity</a></li> <li><a href="/wiki/Exchange-traded_fund" title="Exchange-traded fund">ETF</a></li> <li><a href="/wiki/Money_market" title="Money market">Money</a></li> <li><a href="/wiki/Mutual_fund" title="Mutual fund">Mutual fund</a></li> <li><a href="/wiki/Option_(finance)" title="Option (finance)">Option</a></li> <li><a href="/wiki/Real_estate" title="Real estate">Real estate</a></li> <li><a href="/wiki/Reinsurance" title="Reinsurance">Reinsurance</a></li> <li><a href="/wiki/Structured_product" title="Structured product">Structured product</a></li> <li><a href="/wiki/Swap_(finance)" title="Swap (finance)">Swap (finance)</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#ddddff;"> <a href="/wiki/Alternative_investment" title="Alternative investment">Alternative investment</a></th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <ul><li><a href="/wiki/Private_equity" title="Private equity">Private equity</a></li> <li><a href="/wiki/Private_credit" title="Private credit">Private credit</a></li> <li><a href="/wiki/Leveraged_buyout" title="Leveraged buyout">Leveraged buyout</a></li> <li><a href="/wiki/Venture_capital" title="Venture capital">Venture</a></li> <li><a href="/wiki/Growth_capital" title="Growth capital">Growth</a></li> <li><a href="/wiki/Private_equity_secondary_market" class="mw-redirect" title="Private equity secondary market">Secondaries</a></li> <li><a href="/wiki/Special-purpose_acquisition_company" title="Special-purpose acquisition company">SPAC</a></li> <li><a href="/wiki/Carried_Interest" class="mw-redirect" title="Carried Interest">Carried Interest</a></li> <li><a href="/wiki/Leverage_(finance)" title="Leverage (finance)">Leveraged finance</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#ddddff;"> <a href="/wiki/Over-the-counter_(finance)" title="Over-the-counter (finance)">Over-the-counter (off-exchange)</a></th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <div class="hlist"><ul><li><a href="/wiki/Forward_contract" title="Forward contract">Forwards</a></li><li><a href="/wiki/Option_(finance)" title="Option (finance)">Options</a></li></ul></div> <div class="hlist"><ul><li><a href="/wiki/Spot_market" title="Spot market">Spot market</a></li><li><a href="/wiki/Swap_(finance)" title="Swap (finance)">Swaps</a></li></ul></div></td> </tr><tr><th class="sidebar-heading" style="background:#ddddff;"> <a href="/wiki/Trader_(finance)" title="Trader (finance)">Trading</a></th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <ul><li><a href="/wiki/Financial_market_participants" title="Financial market participants">Participants</a></li> <li><a href="/wiki/Financial_regulation" title="Financial regulation">Regulation</a></li> <li><a href="/wiki/Clearing_(finance)" title="Clearing (finance)">Clearing</a></li></ul></td> </tr><tr><th class="sidebar-heading" style="background:#ddddff;"> Related areas</th></tr><tr><td class="sidebar-content hlist" style="padding:0.15em 0.5em 0.7em;"> <ul><li><a href="/wiki/Asset_management" title="Asset management">Asset management</a></li> <li><a href="/wiki/Bank" title="Bank">Banks and banking</a></li> <li><a href="/wiki/Bull_(stock_market_speculator)" title="Bull (stock market speculator)">Bulls</a> and <a href="/wiki/Market_trend#Bear_market)" title="Market trend">Bears</a></li> <li><a href="/wiki/Diversification_(finance)" title="Diversification (finance)">Diversification</a></li> <li><a href="/wiki/Environmental,_social,_and_governance" title="Environmental, social, and governance">ESG</a> <ul><li><a href="/wiki/Climate_finance" title="Climate finance">Climate finance</a></li> <li><a href="/wiki/Eco-investing" title="Eco-investing">Eco-investing</a></li> <li><a href="/wiki/Impact_investing" title="Impact investing">Impact investing</a></li> <li><a href="/wiki/Sustainable_finance" title="Sustainable finance">Sustainable finance</a></li> <li><a href="/wiki/Greenwashing" title="Greenwashing">Greenwashing</a></li></ul></li> <li><a href="/wiki/Fintech" title="Fintech">Fintech</a></li> <li><a href="/wiki/Investment_management" title="Investment management">Investment management</a></li> <li><a href="/wiki/Market_risk" title="Market risk">Market risk</a></li> <li><a href="/wiki/Market_trend" title="Market trend">Market trend</a></li> <li><a href="/wiki/Speculative_attack" title="Speculative attack">Speculative attack</a></li></ul></td> </tr><tr><td class="sidebar-navbar" style="border-top:1px solid #aaa;"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1129693374"><style data-mw-deduplicate="TemplateStyles:r1239400231">.mw-parser-output .navbar{display:inline;font-size:88%;font-weight:normal}.mw-parser-output .navbar-collapse{float:left;text-align:left}.mw-parser-output .navbar-boxtext{word-spacing:0}.mw-parser-output .navbar ul{display:inline-block;white-space:nowrap;line-height:inherit}.mw-parser-output .navbar-brackets::before{margin-right:-0.125em;content:"[ "}.mw-parser-output .navbar-brackets::after{margin-left:-0.125em;content:" ]"}.mw-parser-output .navbar li{word-spacing:-0.125em}.mw-parser-output .navbar a>span,.mw-parser-output .navbar a>abbr{text-decoration:inherit}.mw-parser-output .navbar-mini abbr{font-variant:small-caps;border-bottom:none;text-decoration:none;cursor:inherit}.mw-parser-output .navbar-ct-full{font-size:114%;margin:0 7em}.mw-parser-output .navbar-ct-mini{font-size:114%;margin:0 4em}html.skin-theme-clientpref-night .mw-parser-output .navbar li a abbr{color:var(--color-base)!important}@media(prefers-color-scheme:dark){html.skin-theme-clientpref-os .mw-parser-output .navbar li a abbr{color:var(--color-base)!important}}@media print{.mw-parser-output .navbar{display:none!important}}</style><div class="navbar plainlinks hlist navbar-mini"><ul><li class="nv-view"><a href="/wiki/Template:Financial_markets" title="Template:Financial markets"><abbr title="View this template">v</abbr></a></li><li class="nv-talk"><a href="/wiki/Template_talk:Financial_markets" title="Template talk:Financial markets"><abbr title="Discuss this template">t</abbr></a></li><li class="nv-edit"><a href="/wiki/Special:EditPage/Template:Financial_markets" title="Special:EditPage/Template:Financial markets"><abbr title="Edit this template">e</abbr></a></li></ul></div></td></tr></tbody></table> <p>In <a href="/wiki/Economics" title="Economics">economics</a> and <a href="/wiki/Accounting" title="Accounting">accounting</a>, the <b>cost of capital</b> is the cost of a company's funds (both <a href="/wiki/Debt" title="Debt">debt</a> and <a href="/wiki/Equity_(finance)" title="Equity (finance)">equity</a>), or from an investor's point of view is "the <a href="/wiki/Required_rate_of_return" class="mw-redirect" title="Required rate of return">required rate of return</a> on a portfolio company's existing securities".<sup id="cite_ref-1" class="reference"><a href="#cite_note-1"><span class="cite-bracket">[</span>1<span class="cite-bracket">]</span></a></sup> It is used to evaluate new projects of a company. It is the minimum return that investors expect for providing capital to the company, thus setting a benchmark that a new project has to meet. </p> <meta property="mw:PageProp/toc" /> <div class="mw-heading mw-heading2"><h2 id="Basic_concept">Basic concept</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=1" title="Edit section: Basic concept"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>For an investment to be worthwhile, the expected <a href="/wiki/Return_on_capital" title="Return on capital">return on capital</a> has to be higher than the cost of <a href="/wiki/Capital_(economics)" title="Capital (economics)">capital</a>. Given a number of competing investment opportunities, investors are expected to put their capital to work in order to maximize the return. In other words, the cost of capital is the rate of return that capital could be expected to earn in the best alternative investment of equivalent risk; this is the <a href="/wiki/Opportunity_cost" title="Opportunity cost">opportunity cost</a> of capital. If a project is of similar risk to a company's average business activities it is reasonable to use the company's average cost of capital as a basis for the evaluation or cost of capital is a firm's cost of raising funds. However, for projects outside the core business of the company, the current cost of capital may not be the appropriate yardstick to use, as the risks of the businesses are not the same.<sup id="cite_ref-Nuno_Fernandes_17_2-0" class="reference"><a href="#cite_note-Nuno_Fernandes_17-2"><span class="cite-bracket">[</span>2<span class="cite-bracket">]</span></a></sup> </p><p>A company's securities typically include both debt and equity; one must therefore calculate both the cost of debt and the cost of equity to determine a company's cost of capital. Importantly, both cost of debt and equity must be forward looking, and reflect the expectations of risk and return in the future. This means, for instance, that the past cost of debt is not a good indicator of the actual forward looking cost of debt. </p><p>Once cost of debt and cost of equity have been determined, their blend, the <a href="/wiki/Weighted_average_cost_of_capital" title="Weighted average cost of capital">weighted average cost of capital</a> (WACC), can be calculated. This WACC can then be used as a <a href="/wiki/Annual_effective_discount_rate" title="Annual effective discount rate">discount rate</a> for a project's projected free cash flows to the firm. </p> <div class="mw-heading mw-heading2"><h2 id="Example">Example</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=2" title="Edit section: Example"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Suppose a company considers taking on a project or investment of some kind, for example installing a new piece of machinery in one of their factories. Installing this new machinery will cost money; paying the technicians to install the machinery, transporting the machinery, buying the parts and so on. This new machinery is also expected to generate new profit (otherwise, assuming the company is interested in profit, the company would not consider the project in the first place). So the company will finance the project with two broad categories of finance: issuing <a href="/wiki/Debt" title="Debt">debt</a>, by taking out a loan or other debt instrument such as a <a href="/wiki/Bond_(finance)" title="Bond (finance)">bond</a>; and issuing <a href="/wiki/Equity_(finance)" title="Equity (finance)">equity</a>, usually by issuing new <a href="/wiki/Share_(finance)" title="Share (finance)">shares</a>. </p><p>The new debt-holders and shareholders who have decided to invest in the company to fund this new machinery will expect a return on their investment: debt-holders require <a href="/wiki/Interest" title="Interest">interest</a> payments and shareholders require <a href="/wiki/Dividend" title="Dividend">dividends</a> (or <a href="/wiki/Capital_gain" title="Capital gain">capital gain</a> from selling the shares after their value increases). The idea is that some of the profit generated by this new project will be used to repay the debt and satisfy the new shareholders. </p><p>Suppose that one of the sources of finance for this new project was a <a href="/wiki/Bond_(finance)" title="Bond (finance)">bond</a> (issued at <a href="/wiki/Par_value" title="Par value">par value</a>) of <span style="white-space: nowrap">$200,000</span> with an interest rate of 5%. This means that the company would issue the bond to some willing investor, who would give the <span style="white-space: nowrap">$200,000</span> to the company which it could then use, for a specified period of time (the term of the bond) to finance its project. The company would also make regular payments to the investor of 5% of the original amount they invested ($10,000), at a yearly or monthly rate depending on the specifics of the bond (these are called coupon payments). At the end of the lifetime of the bond (when the bond <a href="/wiki/Bond_(finance)#Maturity" title="Bond (finance)">matures</a>), the company would return the <span style="white-space: nowrap">$200,000</span> they borrowed. </p><p>Suppose the bond had a lifetime of ten years and coupon payments were made yearly. This means that the investor would receive <span style="white-space: nowrap">$10,000</span> every year for ten years, and then finally their <span style="white-space: nowrap">$200,000</span> back at the end of the ten years. From the investor's point of view, their investment of <span style="white-space: nowrap">$200,000</span> would be regained at the end of the ten years (entailing zero gain or loss), but they would have <i>also</i> gained from the coupon payments; the <span style="white-space: nowrap">$10,000</span> per year for ten years would amount to a net gain of <span style="white-space: nowrap">$100,000</span> to the investor. This is the amount that compensates the investor for taking the risk of investing in the company (since, if it happens that the project fails completely and the company goes bankrupt, there is a chance that the investor does not get their money back). </p><p>This net gain of <span style="white-space: nowrap">$100,000</span> was paid by the company to the investor as a reward for investing their money in the company. In essence, this is how much the company paid to borrow <span style="white-space: nowrap">$200,000</span>. It was the <i>cost</i> of raising <span style="white-space: nowrap">$200,000</span> of new capital. So to raise <span style="white-space: nowrap">$200,000</span> the company had to pay <span style="white-space: nowrap">$100,000</span> out of their profits; thus we say that the <i>cost of debt</i> in this case was 50%. </p><p>Theoretically, if the company were to raise further capital by issuing more of the same bonds, the new investors would also expect a 50% return on their investment (although in practice the required return varies depending on the size of the investment, the lifetime of the loan, the risk of the project and so on). </p><p>The cost of equity follows the same principle: the investors expect a certain return from their investment, and the company must pay this amount in order for the investors to be willing to invest in the company. (Although the cost of equity is calculated differently since dividends, unlike interest payments, are not necessarily a fixed payment or a legal requirement.) </p> <div class="mw-heading mw-heading2"><h2 id="Cost_of_debt">Cost of debt</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=3" title="Edit section: Cost of debt"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>When companies borrow funds from outside lenders, the interest paid on these funds is called the cost of debt. The cost of debt is computed by taking the rate on a <a href="/wiki/Risk-free_bond" title="Risk-free bond">risk-free bond</a> whose duration matches the <a href="/wiki/Term_structure" class="mw-redirect" title="Term structure">term structure</a> of the corporate debt, then adding a <a href="/wiki/Risk_premium" title="Risk premium">default premium</a>. This default premium will rise as the amount of debt increases (since, all other things being equal, the risk rises as the cost of debt rises). Since in most cases debt expense is a <a href="/wiki/Deductible_expense" class="mw-redirect" title="Deductible expense">deductible expense</a>, the cost of debt is computed on an after-tax basis to make it comparable with the cost of equity (earnings are <a href="/wiki/Taxed" class="mw-redirect" title="Taxed">taxed</a> as well). Thus, for profitable firms, debt is <a href="/wiki/Discounted" class="mw-redirect" title="Discounted">discounted</a> by the tax rate. The formula can be written as </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle K_{D}=(R_{f}+{\text{credit risk rate}})(1-T)}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>K</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>D</mi> </mrow> </msub> <mo>=</mo> <mo stretchy="false">(</mo> <msub> <mi>R</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>f</mi> </mrow> </msub> <mo>+</mo> <mrow class="MJX-TeXAtom-ORD"> <mtext>credit risk rate</mtext> </mrow> <mo stretchy="false">)</mo> <mo stretchy="false">(</mo> <mn>1</mn> <mo>−</mo> <mi>T</mi> <mo stretchy="false">)</mo> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle K_{D}=(R_{f}+{\text{credit risk rate}})(1-T)}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/2865b0c486aa617353edda418b838dc54aa5a268" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:36.358ex; height:3.009ex;" alt="{\displaystyle K_{D}=(R_{f}+{\text{credit risk rate}})(1-T)}"></span>,</dd></dl> <p>where <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle T}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <mi>T</mi> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle T}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/ec7200acd984a1d3a3d7dc455e262fbe54f7f6e0" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -0.338ex; width:1.636ex; height:2.176ex;" alt="{\displaystyle T}"></span> is the corporate tax rate and <span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle R_{f}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>R</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>f</mi> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle R_{f}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/eabfb117bfefaaad341b75ad3966e68c90469967" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:2.9ex; height:2.843ex;" alt="{\displaystyle R_{f}}"></span> is the risk free rate. </p> <div class="mw-heading mw-heading2"><h2 id="Cost_of_equity">Cost of equity</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=4" title="Edit section: Cost of equity"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1236090951">.mw-parser-output .hatnote{font-style:italic}.mw-parser-output div.hatnote{padding-left:1.6em;margin-bottom:0.5em}.mw-parser-output .hatnote i{font-style:normal}.mw-parser-output .hatnote+link+.hatnote{margin-top:-0.5em}@media print{body.ns-0 .mw-parser-output .hatnote{display:none!important}}</style><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Cost_of_equity" title="Cost of equity">Cost of equity</a></div> <p>The <a href="/wiki/Cost" title="Cost">cost</a> of equity is <i>inferred</i> by comparing the investment to other investments (comparable) with similar risk profiles. It is commonly computed using the <a href="/wiki/Capital_asset_pricing_model" title="Capital asset pricing model">capital asset pricing model</a> formula: </p> <dl><dd>Cost of equity = Risk free rate of return + Premium expected for risk</dd> <dd>Cost of equity = Risk free rate of return + Beta × (market rate of return – risk free rate of return)</dd></dl> <p>where Beta = sensitivity to movements in the relevant market. Thus in symbols we have </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle E_{s}=R_{f}+\beta _{s}(R_{m}-R_{f})}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>E</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>s</mi> </mrow> </msub> <mo>=</mo> <msub> <mi>R</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>f</mi> </mrow> </msub> <mo>+</mo> <msub> <mi>β</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>s</mi> </mrow> </msub> <mo stretchy="false">(</mo> <msub> <mi>R</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>m</mi> </mrow> </msub> <mo>−</mo> <msub> <mi>R</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>f</mi> </mrow> </msub> <mo stretchy="false">)</mo> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle E_{s}=R_{f}+\beta _{s}(R_{m}-R_{f})}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/ebe4a2db47de8aa090f372682b7723ea29d12dfc" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -1.005ex; width:24.866ex; height:3.009ex;" alt="{\displaystyle E_{s}=R_{f}+\beta _{s}(R_{m}-R_{f})}"></span></dd></dl> <p>where: </p> <dl><dd><i>E<sub>s</sub></i> is the expected return for a security;</dd> <dd><i>R<sub>f</sub></i> is the expected <a href="/wiki/Risk-free_return" class="mw-redirect" title="Risk-free return">risk-free return</a> in that market (government bond yield);</dd> <dd><i>β<sub>s</sub></i> is the sensitivity to <a href="/wiki/Market_risk" title="Market risk">market risk</a> for the security;</dd> <dd><i>R<sub>m</sub></i> is the historical return of the <a href="/wiki/Stock_market" title="Stock market">stock market</a>; and</dd> <dd><i>(R<sub>m</sub> – R<sub>f</sub>)</i> is the <a href="/wiki/Risk_premium" title="Risk premium">risk premium</a> of market assets over risk free assets.</dd></dl> <p>The risk free rate is the yield on long term bonds in the particular market, such as <a href="/wiki/Government_bonds" class="mw-redirect" title="Government bonds">government bonds</a>. </p><p>An alternative to the estimation of the required return by the capital asset pricing model as above, is the use of the <a href="/wiki/Fama%E2%80%93French_three-factor_model" title="Fama–French three-factor model">Fama–French three-factor model</a>. </p> <div class="mw-heading mw-heading3"><h3 id="Expected_return">Expected return</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=5" title="Edit section: Expected return"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The expected return (or required rate of return for investors) can be calculated with the "<a href="/wiki/Dividend_discount_model" title="Dividend discount model">dividend capitalization</a> model", which is </p> <dl><dd><span class="mwe-math-element"><span class="mwe-math-mathml-inline mwe-math-mathml-a11y" style="display: none;"><math xmlns="http://www.w3.org/1998/Math/MathML" alttext="{\displaystyle K_{cs}={\frac {{\text{Dividend}}_{\text{Payment/Share}}(1+{\text{Growth}})}{{\text{Price}}_{\text{Market}}}}+{\text{Growth}}_{\text{rate}}}"> <semantics> <mrow class="MJX-TeXAtom-ORD"> <mstyle displaystyle="true" scriptlevel="0"> <msub> <mi>K</mi> <mrow class="MJX-TeXAtom-ORD"> <mi>c</mi> <mi>s</mi> </mrow> </msub> <mo>=</mo> <mrow class="MJX-TeXAtom-ORD"> <mfrac> <mrow> <msub> <mrow class="MJX-TeXAtom-ORD"> <mtext>Dividend</mtext> </mrow> <mrow class="MJX-TeXAtom-ORD"> <mtext>Payment/Share</mtext> </mrow> </msub> <mo stretchy="false">(</mo> <mn>1</mn> <mo>+</mo> <mrow class="MJX-TeXAtom-ORD"> <mtext>Growth</mtext> </mrow> <mo stretchy="false">)</mo> </mrow> <msub> <mrow class="MJX-TeXAtom-ORD"> <mtext>Price</mtext> </mrow> <mrow class="MJX-TeXAtom-ORD"> <mtext>Market</mtext> </mrow> </msub> </mfrac> </mrow> <mo>+</mo> <msub> <mrow class="MJX-TeXAtom-ORD"> <mtext>Growth</mtext> </mrow> <mrow class="MJX-TeXAtom-ORD"> <mtext>rate</mtext> </mrow> </msub> </mstyle> </mrow> <annotation encoding="application/x-tex">{\displaystyle K_{cs}={\frac {{\text{Dividend}}_{\text{Payment/Share}}(1+{\text{Growth}})}{{\text{Price}}_{\text{Market}}}}+{\text{Growth}}_{\text{rate}}}</annotation> </semantics> </math></span><img src="https://wikimedia.org/api/rest_v1/media/math/render/svg/30128ddb16462ec15a48f82a6a25201cee749b82" class="mwe-math-fallback-image-inline mw-invert skin-invert" aria-hidden="true" style="vertical-align: -2.338ex; width:55.639ex; height:6.343ex;" alt="{\displaystyle K_{cs}={\frac {{\text{Dividend}}_{\text{Payment/Share}}(1+{\text{Growth}})}{{\text{Price}}_{\text{Market}}}}+{\text{Growth}}_{\text{rate}}}"></span>.</dd></dl> <div class="mw-heading mw-heading3"><h3 id="Comments">Comments</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=6" title="Edit section: Comments"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>The models state that investors will expect a return that is the <a href="/wiki/Risk-free_return" class="mw-redirect" title="Risk-free return">risk-free return</a> plus the security's sensitivity to <a href="/wiki/Market_risk" title="Market risk">market risk</a> (β) times the market risk premium. </p><p>The risk premium varies over time and place, but in some <a href="/wiki/Developed_countries" class="mw-redirect" title="Developed countries">developed countries</a> during the twentieth century it has averaged around 5% whereas in the emerging markets, it can be as high as 7%. The equity market real <a href="/wiki/Capital_gain" title="Capital gain">capital gain</a> return has been about the same as annual real GDP growth. The capital gains on the <a href="/wiki/Dow_Jones_Industrial_Average" title="Dow Jones Industrial Average">Dow Jones Industrial Average</a> have been 1.6% per year over the period 1910–2005.<sup id="cite_ref-3" class="reference"><a href="#cite_note-3"><span class="cite-bracket">[</span>3<span class="cite-bracket">]</span></a></sup> The dividends have increased the total "real" return on average equity to the double, about 3.2%. </p><p>The sensitivity to market risk (β) is unique for each firm and depends on everything from management to its business and <a href="/wiki/Capital_structure" title="Capital structure">capital structure</a>. This value cannot be known "<a href="/wiki/Ex_ante" class="mw-redirect" title="Ex ante">ex ante</a>" (beforehand), but can be estimated from <i><a href="/wiki/Ex_post" class="mw-redirect" title="Ex post">ex post</a></i> (past) returns and past experience with similar firms. </p> <div class="mw-heading mw-heading4"><h4 id="Cost_of_retained_earnings/cost_of_internal_equity"><span id="Cost_of_retained_earnings.2Fcost_of_internal_equity"></span>Cost of retained earnings/cost of internal equity</h4><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=7" title="Edit section: Cost of retained earnings/cost of internal equity"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Note that <a href="/wiki/Retained_earnings" title="Retained earnings">retained earnings</a> are a component of equity, and, therefore, the cost of retained earnings (internal equity) is equal to the cost of equity as explained above. Dividends (earnings that are paid to investors and not retained) are a component of the return on capital to equity holders, and influence the cost of capital through that mechanism. </p> <dl><dd>Cost of internal equity = [(next year's dividend per share/(current market price per share - <a href="/wiki/Flotation_cost" title="Flotation cost">flotation costs</a>)] + growth rate of dividends)]</dd></dl> <div class="mw-heading mw-heading2"><h2 id="Weighted_average_cost_of_capital">Weighted average cost of capital</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=8" title="Edit section: Weighted average cost of capital"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951"><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Weighted_average_cost_of_capital" title="Weighted average cost of capital">Weighted average cost of capital</a></div> <p>The weighted cost of capital (WACC) is used in finance to measure a firm's cost of capital. WACC is not dictated by management. Rather, it represents the minimum return that a company must earn on an existing asset base to satisfy its creditors, owners, and other providers of capital, or they will invest elsewhere.<sup id="cite_ref-Nuno_Fernandes_32_4-0" class="reference"><a href="#cite_note-Nuno_Fernandes_32-4"><span class="cite-bracket">[</span>4<span class="cite-bracket">]</span></a></sup> </p><p>The total capital for a firm is the value of its equity (for a firm without outstanding <a href="/wiki/Warrant_(finance)" title="Warrant (finance)">warrants</a> and <a href="/wiki/Option_(finance)" title="Option (finance)">options</a>, this is the same as the company's <a href="/wiki/Market_capitalization" title="Market capitalization">market capitalization</a>) plus the cost of its debt (the cost of debt should be continually updated as the cost of debt changes as a result of interest rate changes). Notice that the "equity" in the <a href="/wiki/Debt_to_equity_ratio" class="mw-redirect" title="Debt to equity ratio">debt to equity ratio</a> is the market value of all equity, not the <a href="/wiki/Shareholders%27_equity" class="mw-redirect" title="Shareholders' equity">shareholders' equity</a> on the balance sheet. To calculate the firm's weighted cost of capital, we must first calculate the costs of the individual financing sources: Cost of Debt, Cost of Preference Capital, and Cost of Equity Cap. </p><p>Calculation of WACC is an iterative procedure which requires estimation of the fair market value of equity capital<sup class="noprint Inline-Template Template-Fact" style="white-space:nowrap;">[<i><a href="/wiki/Wikipedia:Citation_needed" title="Wikipedia:Citation needed"><span title="This claim needs references to reliable sources. (February 2019)">citation needed</span></a></i>]</sup> if the company is not listed. The <a href="/wiki/Adjusted_present_value" title="Adjusted present value">Adjusted Present Value</a> method (APV) is much easier to use in this case as it separates the value of the project from the value of its financing program. </p> <div class="mw-heading mw-heading2"><h2 id="Factors_that_can_affect_cost_of_capital">Factors that can affect cost of capital</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=9" title="Edit section: Factors that can affect cost of capital"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Below are a list of factors that might affect the cost of capital.<sup id="cite_ref-5" class="reference"><a href="#cite_note-5"><span class="cite-bracket">[</span>5<span class="cite-bracket">]</span></a></sup><sup id="cite_ref-6" class="reference"><a href="#cite_note-6"><span class="cite-bracket">[</span>6<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Capital_structure">Capital structure</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=10" title="Edit section: Capital structure"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951"><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Capital_structure" title="Capital structure">Capital structure</a></div> <p>Because of tax advantages on debt issuance, it will be cheaper to issue debt rather than new equity (this is only true for profitable firms, tax breaks are available only to profitable firms). At some point, however, the cost of issuing new debt will be greater than the cost of issuing new equity. This is because adding debt increases the <a href="/wiki/Default_risk" class="mw-redirect" title="Default risk">default risk</a> – and thus the <a href="/wiki/Interest_rate" title="Interest rate">interest rate</a> that the company must pay in order to borrow money. By utilizing too much debt in its capital structure, this increased default risk can also drive up the costs for other sources (such as retained earnings and preferred stock) as well. Management must identify the "optimal mix" of financing – the <a href="/wiki/Capital_structure" title="Capital structure">capital structure</a> where the cost of capital is minimized so that the firm's value can be maximized. </p><p>The <a href="/wiki/Thomson_Financial_league_tables" class="mw-redirect" title="Thomson Financial league tables">Thomson Financial league tables</a> show that global debt issuance exceeds equity issuance with a 90 to 10 margin. </p><p>The structure of capital should be determined considering the weighted average cost of capital. </p> <div class="mw-heading mw-heading2"><h2 id="Current_dividend_policy">Current dividend policy</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=11" title="Edit section: Current dividend policy"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <div class="mw-heading mw-heading3"><h3 id="Financial_and_investment_decisions">Financial and investment decisions</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=12" title="Edit section: Financial and investment decisions"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <div class="mw-heading mw-heading3"><h3 id="Current_income_tax_rates">Current income tax rates</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=13" title="Edit section: Current income tax rates"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <div class="mw-heading mw-heading3"><h3 id="Interest_rates">Interest rates</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=14" title="Edit section: Interest rates"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <div class="mw-heading mw-heading3"><h3 id="Accounting_information">Accounting information</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=15" title="Edit section: Accounting information"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <p>Lambert, Leuz and Verrecchia (2007) have found that the quality of accounting information can affect a firm's cost of capital, both directly and indirectly.<sup id="cite_ref-7" class="reference"><a href="#cite_note-7"><span class="cite-bracket">[</span>7<span class="cite-bracket">]</span></a></sup> </p> <div class="mw-heading mw-heading3"><h3 id="Breakpoint_of_marginal_cost_of_capital">Breakpoint of marginal cost of capital</h3><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=16" title="Edit section: Breakpoint of marginal cost of capital"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <div class="mw-heading mw-heading2"><h2 id="Modigliani–Miller_theorem"><span id="Modigliani.E2.80.93Miller_theorem"></span>Modigliani–Miller theorem</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=17" title="Edit section: Modigliani–Miller theorem"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1236090951"><div role="note" class="hatnote navigation-not-searchable">Main article: <a href="/wiki/Modigliani%E2%80%93Miller_theorem" title="Modigliani–Miller theorem">Modigliani–Miller theorem</a></div> <p>If there were no tax advantages for issuing debt, and equity could be freely issued, <a href="/wiki/Modigliani%E2%80%93Miller_theorem" title="Modigliani–Miller theorem">Miller and Modigliani</a> showed that, under certain assumptions (no tax, no possibility of bankruptcy), the value of a levered firm and the value of an unlevered firm should be the same. </p> <div class="mw-heading mw-heading2"><h2 id="See_also">See also</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=18" title="Edit section: See also"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><a href="/wiki/Ordinary_share" class="mw-redirect" title="Ordinary share">Ordinary share</a></li> <li><a href="/wiki/Preference_share" class="mw-redirect" title="Preference share">Preference share</a></li></ul> <div class="mw-heading mw-heading2"><h2 id="References">References</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=19" title="Edit section: References"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <style data-mw-deduplicate="TemplateStyles:r1239543626">.mw-parser-output .reflist{margin-bottom:0.5em;list-style-type:decimal}@media screen{.mw-parser-output .reflist{font-size:90%}}.mw-parser-output .reflist .references{font-size:100%;margin-bottom:0;list-style-type:inherit}.mw-parser-output .reflist-columns-2{column-width:30em}.mw-parser-output .reflist-columns-3{column-width:25em}.mw-parser-output .reflist-columns{margin-top:0.3em}.mw-parser-output .reflist-columns ol{margin-top:0}.mw-parser-output .reflist-columns li{page-break-inside:avoid;break-inside:avoid-column}.mw-parser-output .reflist-upper-alpha{list-style-type:upper-alpha}.mw-parser-output .reflist-upper-roman{list-style-type:upper-roman}.mw-parser-output .reflist-lower-alpha{list-style-type:lower-alpha}.mw-parser-output .reflist-lower-greek{list-style-type:lower-greek}.mw-parser-output .reflist-lower-roman{list-style-type:lower-roman}</style><div class="reflist"> <div class="mw-references-wrap"><ol class="references"> <li id="cite_note-1"><span class="mw-cite-backlink"><b><a href="#cite_ref-1">^</a></b></span> <span class="reference-text">Brealey, Myers, Allen. "<a href="/wiki/Principles_of_Corporate_Finance" title="Principles of Corporate Finance">Principles of Corporate Finance</a>", McGraw Hill, Chapter 10</span> </li> <li id="cite_note-Nuno_Fernandes_17-2"><span class="mw-cite-backlink"><b><a href="#cite_ref-Nuno_Fernandes_17_2-0">^</a></b></span> <span class="reference-text">Fernandes, Nuno. 2014, Finance for Executives: A Practical Guide for Managers, p. 17.</span> </li> <li id="cite_note-3"><span class="mw-cite-backlink"><b><a href="#cite_ref-3">^</a></b></span> <span class="reference-text"><sup class="noprint Inline-Template"><span style="white-space: nowrap;">[<i><a href="/wiki/Wikipedia:Link_rot" title="Wikipedia:Link rot"><span title=" Dead link tagged February 2019">dead link</span></a></i><span style="visibility:hidden; color:transparent; padding-left:2px">‍</span>]</span></sup><a rel="nofollow" class="external text" href="https://home.earthlink.net/~intelligentbear/com-dj-infl.htm">Fred's Intelligent Bear Site</a> <a rel="nofollow" class="external text" href="https://web.archive.org/web/20041209192316/http://home.earthlink.net/~intelligentbear/com-dj-infl.htm">Archived</a> 2004-12-09 at the <a href="/wiki/Wayback_Machine" title="Wayback Machine">Wayback Machine</a></span> </li> <li id="cite_note-Nuno_Fernandes_32-4"><span class="mw-cite-backlink"><b><a href="#cite_ref-Nuno_Fernandes_32_4-0">^</a></b></span> <span class="reference-text">Fernandes, Nuno. 2014, Finance for Executives: A Practical Guide for Managers, p. 32.</span> </li> <li id="cite_note-5"><span class="mw-cite-backlink"><b><a href="#cite_ref-5">^</a></b></span> <span class="reference-text"><style data-mw-deduplicate="TemplateStyles:r1238218222">.mw-parser-output cite.citation{font-style:inherit;word-wrap:break-word}.mw-parser-output .citation q{quotes:"\"""\"""'""'"}.mw-parser-output .citation:target{background-color:rgba(0,127,255,0.133)}.mw-parser-output .id-lock-free.id-lock-free a{background:url("//upload.wikimedia.org/wikipedia/commons/6/65/Lock-green.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-limited.id-lock-limited a,.mw-parser-output .id-lock-registration.id-lock-registration a{background:url("//upload.wikimedia.org/wikipedia/commons/d/d6/Lock-gray-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .id-lock-subscription.id-lock-subscription a{background:url("//upload.wikimedia.org/wikipedia/commons/a/aa/Lock-red-alt-2.svg")right 0.1em center/9px no-repeat}.mw-parser-output .cs1-ws-icon a{background:url("//upload.wikimedia.org/wikipedia/commons/4/4c/Wikisource-logo.svg")right 0.1em center/12px no-repeat}body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-free a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-limited a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-registration a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .id-lock-subscription a,body:not(.skin-timeless):not(.skin-minerva) .mw-parser-output .cs1-ws-icon a{background-size:contain;padding:0 1em 0 0}.mw-parser-output .cs1-code{color:inherit;background:inherit;border:none;padding:inherit}.mw-parser-output .cs1-hidden-error{display:none;color:var(--color-error,#d33)}.mw-parser-output .cs1-visible-error{color:var(--color-error,#d33)}.mw-parser-output .cs1-maint{display:none;color:#085;margin-left:0.3em}.mw-parser-output .cs1-kern-left{padding-left:0.2em}.mw-parser-output .cs1-kern-right{padding-right:0.2em}.mw-parser-output .citation .mw-selflink{font-weight:inherit}@media screen{.mw-parser-output .cs1-format{font-size:95%}html.skin-theme-clientpref-night .mw-parser-output .cs1-maint{color:#18911f}}@media screen and (prefers-color-scheme:dark){html.skin-theme-clientpref-os .mw-parser-output .cs1-maint{color:#18911f}}</style><cite class="citation web cs1"><a rel="nofollow" class="external text" href="http://www.svtuition.org/2013/06/factors-affecting-cost-of-capital.html">"Factors Affecting Cost of Capital"</a>. <a rel="nofollow" class="external text" href="https://web.archive.org/web/20200320145722/http://www.svtuition.org/2013/06/factors-affecting-cost-of-capital.html">Archived</a> from the original on 2020-03-20<span class="reference-accessdate">. Retrieved <span class="nowrap">2018-07-10</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Factors+Affecting+Cost+of+Capital&rft_id=http%3A%2F%2Fwww.svtuition.org%2F2013%2F06%2Ffactors-affecting-cost-of-capital.html&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACost+of+capital" class="Z3988"></span></span> </li> <li id="cite_note-6"><span class="mw-cite-backlink"><b><a href="#cite_ref-6">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite class="citation web cs1"><a rel="nofollow" class="external text" href="https://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/factors-affecting-cost-of-capital.asp">"Factors Affecting the Cost of Capital"</a>. <a rel="nofollow" class="external text" href="https://web.archive.org/web/20180709123421/https://www.investopedia.com/exam-guide/cfa-level-1/corporate-finance/factors-affecting-cost-of-capital.asp">Archived</a> from the original on 2018-07-09<span class="reference-accessdate">. Retrieved <span class="nowrap">2018-07-10</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=unknown&rft.btitle=Factors+Affecting+the+Cost+of+Capital&rft_id=https%3A%2F%2Fwww.investopedia.com%2Fexam-guide%2Fcfa-level-1%2Fcorporate-finance%2Ffactors-affecting-cost-of-capital.asp&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACost+of+capital" class="Z3988"></span></span> </li> <li id="cite_note-7"><span class="mw-cite-backlink"><b><a href="#cite_ref-7">^</a></b></span> <span class="reference-text"><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFLambertLeuzVerrecchia2007" class="citation journal cs1">Lambert, Richard; Leuz, Christian; Verrecchia, Robert E. (2007). <a rel="nofollow" class="external text" href="https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-679X.2007.00238.x">"Accounting Information, Disclosure, and the Cost of Capital"</a>. <i>Journal of Accounting Research</i>. <b>45</b> (2): <span class="nowrap">385–</span>420. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.1111%2Fj.1475-679X.2007.00238.x">10.1111/j.1475-679X.2007.00238.x</a>. <a rel="nofollow" class="external text" href="https://web.archive.org/web/20210427054621/https://onlinelibrary.wiley.com/doi/abs/10.1111/j.1475-679X.2007.00238.x">Archived</a> from the original on 2021-04-27<span class="reference-accessdate">. Retrieved <span class="nowrap">2018-08-10</span></span>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=Journal+of+Accounting+Research&rft.atitle=Accounting+Information%2C+Disclosure%2C+and+the+Cost+of+Capital&rft.volume=45&rft.issue=2&rft.pages=%3Cspan+class%3D%22nowrap%22%3E385-%3C%2Fspan%3E420&rft.date=2007&rft_id=info%3Adoi%2F10.1111%2Fj.1475-679X.2007.00238.x&rft.aulast=Lambert&rft.aufirst=Richard&rft.au=Leuz%2C+Christian&rft.au=Verrecchia%2C+Robert+E.&rft_id=https%3A%2F%2Fonlinelibrary.wiley.com%2Fdoi%2Fabs%2F10.1111%2Fj.1475-679X.2007.00238.x&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACost+of+capital" class="Z3988"></span></span> </li> </ol></div></div> <div class="mw-heading mw-heading2"><h2 id="Further_reading">Further reading</h2><span class="mw-editsection"><span class="mw-editsection-bracket">[</span><a href="/w/index.php?title=Cost_of_capital&action=edit&section=20" title="Edit section: Further reading"><span>edit</span></a><span class="mw-editsection-bracket">]</span></span></div> <ul><li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFModiglianiMiller,_M.1958" class="citation journal cs1">Modigliani, F.; Miller, M. (1958). "The Cost of Capital, Corporation Finance and the Theory of Investment". <i><a href="/wiki/The_American_Economic_Review" class="mw-redirect" title="The American Economic Review">American Economic Review</a></i>. <b>48</b> (3): <span class="nowrap">261–</span>297. <a href="/wiki/JSTOR_(identifier)" class="mw-redirect" title="JSTOR (identifier)">JSTOR</a> <a rel="nofollow" class="external text" href="https://www.jstor.org/stable/1809766">1809766</a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Ajournal&rft.genre=article&rft.jtitle=American+Economic+Review&rft.atitle=The+Cost+of+Capital%2C+Corporation+Finance+and+the+Theory+of+Investment&rft.volume=48&rft.issue=3&rft.pages=%3Cspan+class%3D%22nowrap%22%3E261-%3C%2Fspan%3E297&rft.date=1958&rft_id=https%3A%2F%2Fwww.jstor.org%2Fstable%2F1809766%23id-name%3DJSTOR&rft.aulast=Modigliani&rft.aufirst=F.&rft.au=Miller%2C+M.&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACost+of+capital" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFRosenbaum,_JoshuaJoshua_Pearl2009" class="citation book cs1">Rosenbaum, Joshua; Joshua Pearl (2009). <i>Investment Banking: Valuation, Leveraged Buyouts, and Mergers & Acquisitions</i>. Hoboken, NJ: <a href="/wiki/John_Wiley_%26_Sons" class="mw-redirect" title="John Wiley & Sons">John Wiley & Sons</a>. <a href="/wiki/ISBN_(identifier)" class="mw-redirect" title="ISBN (identifier)">ISBN</a> <a href="/wiki/Special:BookSources/978-0-470-44220-3" title="Special:BookSources/978-0-470-44220-3"><bdi>978-0-470-44220-3</bdi></a>.</cite><span title="ctx_ver=Z39.88-2004&rft_val_fmt=info%3Aofi%2Ffmt%3Akev%3Amtx%3Abook&rft.genre=book&rft.btitle=Investment+Banking%3A+Valuation%2C+Leveraged+Buyouts%2C+and+Mergers+%26+Acquisitions&rft.place=Hoboken%2C+NJ&rft.pub=John+Wiley+%26+Sons&rft.date=2009&rft.isbn=978-0-470-44220-3&rft.au=Rosenbaum%2C+Joshua&rft.au=Joshua+Pearl&rfr_id=info%3Asid%2Fen.wikipedia.org%3ACost+of+capital" class="Z3988"></span></li> <li><link rel="mw-deduplicated-inline-style" href="mw-data:TemplateStyles:r1238218222"><cite id="CITEREFYee2000" class="citation journal cs1">Yee, Kenton K. (2000). "Aggregation, Dividend Irrelevancy, and Earnings-Value Relations". <i><a href="/wiki/Contemporary_Accounting_Research" title="Contemporary Accounting Research">Contemporary Accounting Research</a></i>. <b>22</b> (2): <span class="nowrap">453–</span>480. <a href="/wiki/Doi_(identifier)" class="mw-redirect" title="Doi (identifier)">doi</a>:<a rel="nofollow" class="external text" href="https://doi.org/10.1506%2FGEH4-WNJR-G58F-UM0U">10.1506/GEH4-WNJR-G58F-UM0U</a>. <a href="/wiki/S2CID_(identifier)" class="mw-redirect" title="S2CID (identifier)">S2CID</a> <a rel="nofollow" class="external text" href="https://api.semanticscholar.org/CorpusID:154429249">154429249</a>. <a href="/wiki/SSRN_(identifier)" class="mw-redirect" title="SSRN (identifier)">SSRN</a> <a rel="nofollow" class="external text" href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=667781">667781</a>.</cite><span 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href="/wiki/Mezzanine_capital" title="Mezzanine capital">Mezzanine debt</a></li> <li><a href="/wiki/Pari_passu#In_lending,_bankruptcy_and_default" title="Pari passu">Pari passu</a></li> <li><a href="/wiki/Preferred_stock" title="Preferred stock">Preferred equity</a></li> <li><a href="/wiki/Second_lien_loan" title="Second lien loan">Second lien debt</a></li> <li><a href="/wiki/Senior_debt" title="Senior debt">Senior debt</a></li> <li><a href="/wiki/Secured_loan" title="Secured loan">Senior secured debt</a></li> <li><a href="/wiki/Shareholder_loan" title="Shareholder loan">Shareholder loan</a></li> <li><a href="/wiki/Stock" title="Stock">Stock</a></li> <li><a href="/wiki/Subordinated_debt" title="Subordinated debt">Subordinated debt</a></li> <li><a href="/wiki/Warrant_(finance)" title="Warrant (finance)">Warrant</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%;line-height:1.3em; text-align:left;">Transactions<br /><span class="nobold">(terms/conditions)</span></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"></div><table class="nowraplinks navbox-subgroup" style="border-spacing:0"><tbody><tr><th scope="row" class="navbox-group" style="width:1%;line-height:1.3em;"><a href="/wiki/Public_offering" title="Public offering">Equity offerings</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/At-the-market_offering" title="At-the-market offering">At-the-market offering</a></li> <li><a href="/wiki/Book_building" title="Book building">Book building</a></li> <li><a href="/wiki/Bookrunner" title="Bookrunner">Bookrunner</a></li> <li><a href="/wiki/Bought_deal" title="Bought deal">Bought deal</a></li> <li><a href="/wiki/Bought_out_deal" title="Bought out deal">Bought out deal</a></li> <li><a href="/wiki/Corporate_spin-off" title="Corporate spin-off">Corporate spin-off</a></li> <li><a href="/wiki/Direct_public_offering" title="Direct public offering">Direct public offering</a></li> <li><a href="/wiki/Equity_carve-out" title="Equity carve-out">Equity carve-out</a></li> <li><a href="/wiki/Follow-on_offering" title="Follow-on offering">Follow-on offering</a></li> <li><a href="/wiki/Greenshoe" title="Greenshoe">Greenshoe</a> <ul><li><a href="/wiki/Reverse_greenshoe" class="mw-redirect" title="Reverse greenshoe">Reverse</a></li></ul></li> <li><a href="/wiki/Initial_public_offering" title="Initial public offering">Initial public offering</a></li> <li><a href="/wiki/Pre-IPO" title="Pre-IPO">Pre-IPO</a></li> <li><a href="/wiki/Private_placement" title="Private placement">Private placement</a></li> <li><a href="/wiki/Public_offering" title="Public offering">Public offering</a></li> <li><a href="/wiki/Rights_issue" title="Rights issue">Rights issue</a></li> <li><a href="/wiki/Seasoned_equity_offering" title="Seasoned equity offering">Seasoned equity offering</a></li> <li><a href="/wiki/Secondary_market_offering" title="Secondary market offering">Secondary market offering</a></li> <li><a href="/wiki/Underwriting" title="Underwriting">Underwriting</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%;line-height:1.3em;"><a href="/wiki/Mergers_and_acquisitions" title="Mergers and acquisitions">Mergers and<br />acquisitions</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Buy_side" title="Buy side">Buy side</a></li> <li><a href="/wiki/Contingent_value_rights" title="Contingent value rights">Contingent value rights</a></li> <li><a href="/wiki/Control_premium" title="Control premium">Control premium</a></li> <li><a href="/wiki/Demerger" title="Demerger">Demerger</a></li> <li><a href="/wiki/Divestment" title="Divestment">Divestment</a></li> <li><a href="/wiki/Drag-along_right" title="Drag-along right">Drag-along right</a></li> <li><a href="/wiki/Management_due_diligence" title="Management due diligence">Management due diligence</a></li> <li><a href="/wiki/Managerial_entrenchment" class="mw-redirect" title="Managerial entrenchment">Managerial entrenchment</a></li> <li><a href="/wiki/Mandatory_offer" title="Mandatory offer">Mandatory offer</a></li> <li><a href="/wiki/Minority_discount" title="Minority discount">Minority discount</a></li> <li><a href="/wiki/Pitch_book" title="Pitch book">Pitch book</a></li> <li><a href="/wiki/Pre-emption_right" title="Pre-emption right">Pre-emption right</a></li> <li><a href="/wiki/Proxy_fight" title="Proxy fight">Proxy fight</a></li> <li><a href="/wiki/Post-merger_integration" title="Post-merger integration">Post-merger integration</a></li> <li><a href="/wiki/Sell_side" title="Sell side">Sell side</a></li> <li><a href="/wiki/Shareholder_rights_plan" title="Shareholder rights plan">Shareholder rights plan</a></li> <li><a href="/wiki/Special-purpose_entity" title="Special-purpose entity">Special-purpose entity</a></li> <li><a href="/wiki/Special_situation" title="Special situation">Special situation</a></li> <li><a href="/wiki/Squeeze-out" title="Squeeze-out">Squeeze-out</a></li> <li><a href="/wiki/Staggered_board_of_directors" class="mw-redirect" title="Staggered board of directors">Staggered board of directors</a></li> <li><a href="/wiki/Stock_swap" title="Stock swap">Stock swap</a></li> <li><a href="/wiki/Super-majority_amendment" class="mw-redirect" title="Super-majority amendment">Super-majority amendment</a></li> <li><a href="/wiki/Corporate_synergy" title="Corporate synergy">Synergy</a></li> <li><a href="/wiki/Tag-along_right" title="Tag-along right">Tag-along right</a></li> <li><a href="/wiki/Takeover" title="Takeover">Takeover</a> <ul><li><a href="/wiki/Reverse_takeover" title="Reverse takeover">Reverse</a></li></ul></li> <li><a href="/wiki/Tender_offer" title="Tender offer">Tender offer</a></li></ul> </div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%;line-height:1.3em;"><a href="/wiki/Leverage_(finance)" title="Leverage (finance)">Leverage</a></th><td class="navbox-list-with-group navbox-list navbox-even" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Debt_restructuring" title="Debt restructuring">Debt restructuring</a></li> <li><a href="/wiki/Debtor-in-possession_financing" title="Debtor-in-possession financing">Debtor-in-possession financing</a></li> <li><a href="/wiki/Dividend_recapitalization" title="Dividend recapitalization">Dividend recapitalization</a></li> <li><a href="/wiki/Financial_sponsor" title="Financial sponsor">Financial sponsor</a></li> <li><a href="/wiki/Leveraged_buyout" title="Leveraged buyout">Leveraged buyout</a></li> <li><a href="/wiki/Leveraged_recapitalization" title="Leveraged recapitalization">Leveraged recapitalization</a></li> <li><a href="/wiki/High-yield_debt" title="High-yield debt">High-yield debt</a></li> <li><a href="/wiki/Private_equity" title="Private equity">Private equity</a></li> <li><a href="/wiki/Project_finance" title="Project finance">Project finance</a></li></ul> </div></td></tr></tbody></table><div></div></td></tr><tr><th scope="row" class="navbox-group" style="width:1%;line-height:1.3em; text-align:left;"><a href="/wiki/Valuation_(finance)" title="Valuation (finance)">Valuation</a></th><td class="navbox-list-with-group navbox-list navbox-odd" style="width:100%;padding:0"><div style="padding:0 0.25em"> <ul><li><a href="/wiki/Accretion/dilution_analysis" title="Accretion/dilution analysis">Accretion/dilution analysis</a></li> <li><a href="/wiki/Adjusted_present_value" title="Adjusted present value">Adjusted present value</a></li> <li><a href="/wiki/Associate_company" title="Associate company">Associate company</a></li> <li><a href="/wiki/Business_valuation" title="Business valuation">Business valuation</a></li> <li><a href="/wiki/Conglomerate_discount" title="Conglomerate discount">Conglomerate discount</a></li> <li><a class="mw-selflink selflink">Cost of capital</a> <ul><li><a href="/wiki/Weighted_average_cost_of_capital" title="Weighted average cost of capital">Weighted average</a></li></ul></li> <li><a href="/wiki/Discounted_cash_flow" title="Discounted cash flow">Discounted cash flow</a></li> <li><a href="/wiki/Economic_value_added" title="Economic value added">Economic value added</a></li> <li><a href="/wiki/Enterprise_value" title="Enterprise value">Enterprise value</a></li> <li><a href="/wiki/Fairness_opinion" title="Fairness opinion">Fairness opinion</a></li> <li><a href="/wiki/Financial_modeling" title="Financial modeling">Financial modeling</a></li> <li><a href="/wiki/Free_cash_flow" title="Free cash flow">Free cash flow</a> <ul><li><a href="/wiki/Free_cash_flow_to_equity" title="Free cash flow to equity">Free cash flow to equity</a></li></ul></li> <li><a href="/wiki/Market_value_added" title="Market value added">Market value added</a></li> <li><a href="/wiki/Minority_interest" title="Minority interest">Minority interest</a></li> <li><a href="/wiki/Mismarking" title="Mismarking">Mismarking</a></li> <li><a href="/wiki/Modigliani%E2%80%93Miller_theorem" title="Modigliani–Miller theorem">Modigliani–Miller theorem</a></li> <li><a href="/wiki/Net_present_value" title="Net present value">Net present value</a></li> <li><a href="/wiki/Pure_play#Pure_play_method" title="Pure play">Pure play</a></li> <li><a href="/wiki/Real_options_valuation" title="Real options valuation">Real options</a></li> <li><a href="/wiki/Residual_income_valuation" title="Residual income valuation">Residual income</a></li> <li><a href="/wiki/Stock_valuation" title="Stock valuation">Stock valuation</a></li> <li><a href="/wiki/Sum-of-the-parts_analysis" title="Sum-of-the-parts analysis">Sum-of-the-parts analysis</a></li> <li><a href="/wiki/Tax_shield" title="Tax shield">Tax shield</a></li> <li><a href="/wiki/Terminal_value_(finance)" title="Terminal value (finance)">Terminal value</a></li> <li><a href="/wiki/Valuation_using_multiples" title="Valuation using multiples">Valuation using multiples</a></li></ul> </div></td></tr><tr><td class="navbox-abovebelow" colspan="2"><div> <ul><li><span class="noviewer" typeof="mw:File"><span title="List-Class article"><img alt="" src="//upload.wikimedia.org/wikipedia/en/thumb/d/db/Symbol_list_class.svg/16px-Symbol_list_class.svg.png" decoding="async" width="16" height="16" class="mw-file-element" srcset="//upload.wikimedia.org/wikipedia/en/thumb/d/db/Symbol_list_class.svg/23px-Symbol_list_class.svg.png 1.5x, //upload.wikimedia.org/wikipedia/en/thumb/d/db/Symbol_list_class.svg/31px-Symbol_list_class.svg.png 2x" data-file-width="180" data-file-height="185" /></span></span> <a href="/wiki/List_of_investment_banks" title="List of investment banks">List of investment banks</a></li> <li><span class="noviewer" typeof="mw:File"><span 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