Chp
Cost of
1
WACC
K
equation
Wdkd
:
capital
Wpkp
+
after tax
cost of debt
kd
i
:
-1
:
ll
i
:
fail
:
corporate
cost of Debt
tax rate
Before
M
+
-
in
.
yield
to
obligations
to
bankruptcy
maturity
from bond
.
may
in %
.
%
Tax
Vd
n
:
I
borrowing
meet
to
lead
from
Interest
Kd
Default Risk
,
T)
-
INT
We ke
+
Kd
OR
:
Interest
Net Proceed
M + Vd
2
Int
coupon
:
RM
in
m
Vd
N
"
Par
:
:
kd
,
if
value
coupons
in
.
Net Market
Remaining
:
2
interest rate
"
is
✗
payment
are
.
calculated
semiannual
in -1
,
based
on
par
value
.
I 2
RM
value
period
:
to
selling Price
maturity
,
if
-
Flotation
coupon
are
cost
.
in
Rm
semiannual
,
n
✗
2
fixed
2
to
get
annualized
cost
of debt
under
semiannual
coupon
Preferred stock
cost of
kp
Dp
:
Pp
Dp
Kp
Pp
Dividend
:
Required
:
>
cost of Retained
I.
:
:
1
Earnings
+
B ( risk premium )
Rf
+
B
bond
:
Ke
:
(
Rm
yield
3. Constant
%
working of
show the
net
price
Equity
Do
Rt )
-
Risk Premium Approach
+
yield
+
(1-19)
Rate
Expected
Expected
Total
✗✗
.
✗✗
Total
risk
,
premium
Ke
OR
g
Do
:
(1+9)
Po (
I
-
,
g
F)
of Return
future cash flow
Upfront
13%-5 %)
Dividend Model
Growth
Po
:
Need to
Rt
Bond
Ke
i
in
,
CAPM
Ke
2.
of return
rate
Price
Net
:
RM
in
.
1
cost
%
Upfront
cost
:
Initial cost
+
Flotation cost
in RM
in
%
Net Proceed
Par value × %
Par value
Payback
PBI
:
Period
No of
,
full recovery
yrs before
Ignore any
+
"
"
-
Cumulative OF before full
G-
during
full
recovery
recovery