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  • Cost of Equity-Cost of Debt Etc

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    Olivier M
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    The document discusses different methods for calculating the cost of equity (Ke) and cost of debt (Kd) for a company. It provides the calculations and results for Ke using the dividend growth model, Gordon's growth model, and CAPM. It also shows the calculations for determining Kd using the after-tax cost of irredeemable debt. The key inputs and outcomes are presented for each method.

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    Cost of equity-cost of debt etc

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    The document discusses different methods for calculating the cost of equity (Ke) and cost of debt (Kd) for a company. It provides the calculations and results for Ke using the dividend growth model, Gordon's growth model, and CAPM. It also shows the calculations for determining Kd using the after-tax cost of irredeemable debt. The key inputs and outcomes are presented for each method.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    5 views10 pages

    Cost of Equity-Cost of Debt Etc

    Uploaded by

    Olivier M
    The document discusses different methods for calculating the cost of equity (Ke) and cost of debt (Kd) for a company. It provides the calculations and results for Ke using the dividend growth model, Gordon's growth model, and CAPM. It also shows the calculations for determining Kd using the after-tax cost of irredeemable debt. The key inputs and outcomes are presented for each method.

    Copyright:

    © All Rights Reserved
    Download as XLSX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    Download as xlsx, pdf, or txt
    of 10

    Ke D0(1+g) +g

    P0

    D0 Current dividend
    P0 Ex dividend market price

    Ke 18.13%

    Growth Rate using past growth method

    d0 Current Dividend
    dn Dividend n years ago
    g 7.87%

    Ke D0(1+g)/P0 +g

    Ke 12.47%

    Growth Rate using Gordon's Growth Method

    g = rb

    r return on reinvested funds


    b proportion of funds retained

    g= rb
    r 12%
    b 70%
    g 8.40%

    Ke D0(1+g)/P0 + g

    Ke 17.07%

    Cost of Equity using CAPM


    Ke Rf + (Rm-Rf) B

    Ke 16.40%

    Cost of Debt -Redeemable

    Coupon Rate adjusted for tax

    Cost of Debt - Irredeemable


    Kd=i(1-t)/P0 x 100%

    Interest 10
    Kd 5.83%

    Cost of Debt- Redeemable

    Cost of debt for redeemable debt is the IRR of the relevant ca


    t is the IRR of the relevant cashflows

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