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

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.