{"id":491,"date":"2014-06-18T16:05:51","date_gmt":"2014-06-18T16:05:51","guid":{"rendered":"http:\/\/zh.aceessays.com\/tc\/?p=491"},"modified":"2015-01-18T20:41:02","modified_gmt":"2015-01-18T20:41:02","slug":"what-is-the-cost-of-capital","status":"publish","type":"post","link":"https:\/\/www.aceessays.com\/tc\/what-is-the-cost-of-capital\/","title":{"rendered":"What is the cost of capital?"},"content":{"rendered":"<h3>What is the cost of capital?<\/h3>\n<ul>\n<li>All providers of finance require returns.<\/li>\n<li>The required return will reflect the risk of the investment and the returns of alternatives.<\/li>\n<li>Companies need information about the cost of different sources of finance in order to find the overall cost of finance and make investment and financing decisions.<\/li>\n<li>Perhaps an \u2018optimum\u2019 capital structure exists, which a firm can seek to achieve.<\/li>\n<\/ul>\n<h3>Ordinary shares<\/h3>\n<ul>\n<li>The cost of equity can be found from the rearranged dividend growth model:<\/li>\n<\/ul>\n<p>Ke = cost of equity<br \/>\nP0 = the current ex-div share price<br \/>\nD1 = the dividend received each year<br \/>\ng = the expected growth rate of dividends<\/p>\n<h3>Ordinary shares<\/h3>\n<p>Calculating Ke using dividend growth model:<\/p>\n<ul>\n<li>Current ex div share price: 176p<\/li>\n<li>Current dividend per share: 20p<\/li>\n<li>Expected dividend growth rate: 5%<\/li>\n<li>Next year\u2019s dividend (D1) = 20 \u00d7 1.05 = 21p<\/li>\n<li>Ke = (21\/176) + 0.05 = 0.119 + 0.05 = 0.169<\/li>\n<li>Ke = 16.9%<\/li>\n<\/ul>\n<h3>Ordinary shares<\/h3>\n<ul>\n<li>The cost of equity can also be found from the CAPM:<\/li>\n<\/ul>\n<p>Rj = Rf + \u03b2j (Rm &#8211; Rf)<br \/>\nWhere:<br \/>\nRm = return of the market<br \/>\nRf = risk-free rate of return<br \/>\n(Rm \u2013 Rf) = equity risk premium<br \/>\n\u03b2j = beta value of ordinary share<\/p>\n<p>Essay writing from: <a href=\"http:\/\/www.aceessays.com\/tc\/\">\u8ad6\u6587\u4ee3\u5beb<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>What is the cost of capital? All providers of finance require returns. The required return will reflect the risk of the investment and the returns of alternatives. Companies need information about the cost of different sources of finance in order to find the overall cost of finance and make investment and financing decisions. Perhaps an \u2018optimum\u2019 capital structure exists, which a firm can seek to achieve. Ordinary shares The cost of equity can be found from the rearranged dividend growth model: Ke = cost of equity P0 = the current ex-div share price D1 = the dividend received each year g = the expected growth rate of dividends Ordinary shares Calculating Ke using dividend growth model: Current ex div share price: 176p Current dividend per share: 20p Expected dividend growth rate: 5% Next year\u2019s dividend (D1) = 20 \u00d7 1.05 = 21p Ke = (21\/176) + 0.05 = 0.119 +<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":["post-491","post","type-post","status-publish","format-standard","hentry","category-notes"],"_links":{"self":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/491","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/comments?post=491"}],"version-history":[{"count":1,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/491\/revisions"}],"predecessor-version":[{"id":1522,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/491\/revisions\/1522"}],"wp:attachment":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/media?parent=491"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/categories?post=491"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/tags?post=491"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}