Corp Finance #10 Cost of Capital–Debt & Equity Financing

Name: Corp Finance #10 Cost of Capital–Debt & Equity Financing
Rating: 4.4 (89 reviews)

Learn weighted average cost of capital (WACC), debt financing, & equity financing from a Certified Public Accountant CPA

Created byRobert (Bob) Steele

Last updated 6/2023

English

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What you'll learn

Calculate weighted average cost of capital (WACC)
Calculate the cost of debt
Calculate the cost of preferred stock
Calculate the cost of common stock
Explain the optimal company capital structure
Understand how taxes impact the cost of capital decision

Course content

3 sections • 26 lectures • 5h 10m total length

1105 Cost of Capital Debt Equity Financing Overview5:31
Assess debt financing and equity financing as funding sources for investments, and examine how cost of capital, tax effects, and capital structure influence project selection and required returns.
1110 Weighted Average Cost of Capital WACC11:25
Discover the weighted average cost of capital (WACC) as a framework for debt and equity financing, outlining after-tax cost of debt, cost of equity, and capital structure.
1115 Cost of Debt10:36
Analyze the cost of debt within the weighted average cost of capital, focusing on after-tax rates, market rate, and bond pricing effects.
1120 Cost of Preferred Stock8:27
Explore the cost of preferred stock as an intro to equity financing. Compare its dividend-based rate to debt costs within the weighted average cost of capital, accounting for flotation costs.
1125 Cost of Common Equity16:20
Explore the cost of common equity within the weighted average cost of capital, comparing debt and equity financing, and apply dividend valuation and capital asset pricing model.
1130 The Optimal Capital Structure10:33
Explore the optimal capital structure by analyzing the weighted average cost of capital (WACC), balancing debt and equity, and understanding the impact of taxes and risk on costs.

OneNote Resource
1114 Cost of Debt After Tax Prob 112:19
Calculate the cost of debt after tax using interest rate times (1 minus tax rate) with a 100,000 loan at 5% and compare to equity via the tax benefit.
1115 Cost of Debt After Tax Prob. 216:03
Calculate the after-tax cost of debt using the formula interest rate times (1 minus tax rate) and compare debt to equity financing, highlighting the tax benefit.
1117 Cost of Debt After Tax Interest Rate Calculation8:59
Compute the debt cost after taxes by solving for the debt rate using the formula cost after tax equals debt rate times (one minus tax rate), using algebra and tables.
1119 Cost of Debt After Tax Interest Rate Calculation20:24
Learn to compute after-tax cost of debt by deriving the market rate from bond price (discount or premium) and comparing debt versus equity financing.
1120 Calculate Change in Cost of Debt After tax Due to Reduced Tax Rates12:17
Calculate the change in the cost of debt after tax when tax rates shift, using market rate versus the bond rate, tax shields, and a par value example.
1123 Cost of Preferred Stock Percent6:23
Calculate the cost of preferred stock percent as $9 dividend over $146 net proceeds from a $150 issue, 6.16%, and compare to debt, noting no tax deduction and no maturity.
1126 Financing Common Stock Prob 18:59
Calculate the cost of common stock financing using dividends per share, stock price, growth, and flotation costs, then compare the equity cost to debt financing.
1127 Financing Common Stock Prob. 216:03
Explore the cost of capital for common stock financing, comparing dividends, growth, and flotation costs to debt, and learn to compute net issue prices and equity costs.

1112 Weighted Average Cost of Capital (WACC)12:36
This lecture uses an Excel practice problem to compute the weighted average cost of capital (WACC), or ACTC, with 40% debt and 60% equity, and explains the formula and components.
1114 Cost of Debt After Tax Prob 113:12
Compute the after-tax cost of debt using interest and the tax benefit, illustrated with 100,000 debt at 5% and 30% tax, yielding 3.5% after-tax cost; compare debt and equity financing.
1115 Cost of Debt After Tax Prob 225:46
Calculate the cost of debt after tax using the tax benefit from interest expense deduction in Excel, exploring debt financing concepts and practical examples.
1117 Cost of Debt After Tax Interest Rate Calculation11:27
Learn to calculate cost of debt after taxes in Excel, solve for the debt rate with a 35% tax rate, and use goal seek and algebra.
1119 Calculate Bond After Tax Cost to Issue22:31
Learn to compute a bond's after-tax cost of debt using Excel, deriving the market rate from price, and accounting for premium or discount, interest tax shield, and amortization.
1120 Calculate Change in Cost of Debt After Tax Due to Reduced Tax Rates12:20
demonstrates calculating the change in after-tax cost of debt when tax rates fall from 35% to 25%, using yield to maturity and an Excel worksheet.
1123 Cost of Preferred Stock Percent4:17
Compute the cost of preferred stock as annual dividends divided by net proceeds after flotation costs, yielding about 6.16% for equity financing.
1124 Calculate Preferred Stock Current Yield3:31
Compute the current yield of preferred stock using an Excel worksheet by calculating annual dividend from par value and issuance yield, then divide by the current price.
1125 Financing Debt vs Preferred Stock11:12
Explore debt versus preferred stock financing using an Excel model. Calculate after-tax debt cost at 7.8% and preferred stock cost at 9.23%, highlighting tax impact and flotation costs.
1126 Financing Common Stock Prob 19:59
Learn how to compute the cost of common stock for financing, using dividends per share, stock price, growth, and flotation costs to compare with debt options.
1127 Financing Common Stock Prob 218:55
Explore calculating the cost of common stock and retained earnings using dividends, stock price, and growth rate, including flotation costs and net price impacts in equity financing.

Requirements

Basic understanding of corporate finance concepts

Description

This course will discusses weighted average cost of capital, debt, and equity financing from a corporate finance perspective.

We will include many example problems, both in the format of presentations and Excel worksheet problems. The Excel worksheet presentations will include a downloadable Excel workbook with at least two tabs, one with the answer, the second with a preformatted worksheet that can be completed in a step-by-step process along with the instructional videos.

The general idea we want to keep in our mind is that businesses are looking to invest assets in order to receive a return. Capital, or financing, is needed for the capital investments. A company could generate the capital from internal operations, but often looks for other sources of financing to facilitate faster growth and quicker revenue generation.

The options to acquire capital include debt financing and equity financing. As a company thinks about their financing options, they should have an understanding of their financing structure. The weighted average cost of capital (WACC) is often used for financing decisions. This course will demonstrate the WACC calculation.

Learners will understand how to calculate the cost of debt. One of the primary forms of debt financing are corporate bonds, the cost including interest payments on the bonds. Taxes have a big impact on financing decisions. Bond interest is generally tax deductible.

We will also consider preferred stock financing. In many ways preferred stock is similar to debt financing because of the payments that are somewhat standardized. However, preferred stock does not have a maturity date and the payments are not generally tax deductible.

The course will demonstrate common stock financing, a form of equity financing. It can be more difficult to value the cost of common stock financing and we will consider methods in doing so.

Who this course is for:

Business students
Business professionals

Corp Finance #10 Cost of Capital–Debt & Equity Financing

What you'll learn

Explore related topics

Course content

Introduction6 lectures • 1hr 3min

Practice Probs. - The Cost of Capital – Debt / Equity Financing9 lectures • 1hr 41min

Excel Probs. - The Cost of Capital – Debt / Equity Financing11 lectures • 2hr 26min

Requirements

Description

Who this course is for: