BUS ADM 350
nt Model
Line
of Capital (WACC)
Spring 2026
explicitly face the market)
opportunity costs)
turn is a cost to the firm
Model
(CAPM)
TM)
es of similar debt
T MODEL
$2.25
H
TH GROWTH
.28
. If P
0
= $48
, what is
0.027 = 0.0758
ULTIPLE YEARS OF
K BACK UPON?
+ 0.0232 = 0.0718
MARKET
rket information when
ital.
?
ok at the stock's systematic
ed to be well diversified.
matters for pricing.
LINE
[E(R m ) − R F ]
a β of 0.75. The market
e risk free rate is 4%.
quity?
12 − 0.04)= 0.10
K
pters
equity
s finding cost of preferred
$2.25
e coupons and face value
TM) is the interest rate the
nts are NOT the interest
e traded debt, we have to
er firms of similar risk.
3.16,1000,0,[make a
6
; [PMT] = 100 ; [FV]
E COST OF CAPITAL
ust consider cost of capital
ment does not change the
firm is weighted
structure
mix of financing between
ed stock
are about book value or
ructure?
D
+
E + D
m
× R D × (1 − τC )
utstanding, each worth
% , the expected return on
stock's beta is 1.5. The
00 with a yield to maturity
the firm's WACC?
$30, 000.
par = $20, 000
05) = 0.155
.155
0.08 × (1 − 0.35)
%
WACC
ed
vidends should have value
rom Assets to valuate
te is the WACC
+ g)
− g
iation − ΔN W C − Capital Spending
LUATION
is $50 ; there was zero
change in net working
%. If WACC is 11.38% with
he value of the firm?
) + $50 − 0 − 0 = $375
W AC C = 0.1138
+ 0.01)
0.01
d l
nt Model
Line
of Capital (WACC)
No reproduction or distribution
Michael Farrell, PhD
without prior written consent.