The Cost of Capital

The discount rate applicable to projects
IE code:
DF2-141-I-M
Language:   English
also available in Spanish
Format:  
Multimedia
also available in PDF
Est. dedication time:
60 minutes
Academic Area:
Type of publication:
Technical Note
The Cost of Capital

Awards received

  • Most Used IE Multimedia Awards 2010 Finalist

Description

This multimedia tutorial teaches students how to calculate the weighted average cost of capital (WACC). It also shows interactive graphs where the students can analyze the effects of equity beta asset beta and the financing mix of the company on the WACC and the NPV. These graphs are complemented by several exercises.

At the end of the tutorial a simple practical case about the correct procedure to use for calculating the WACC when a company is going to float on the stock market is included. This section is complemented by links to websites where the financial information needed to complete the exercise can be found (equity betas from different sectors and their financing mix).
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Author's comments

In this multimedia tool many interactive graphs are presented where students can observe the effect of a variable over others. We have developed different numerical exercises for students to cement the concepts of WACC beta coefficient risk premium or market risk rate debt cost equity cost among others. Students have the opportunity to practice many times and we invite them to surf the internet searching for financial information required for some of the exercises.