Cost of Capital from edX

This course begins with a look at the connection between the cost of capital to the firm and risk versus expected returns to investors for the different types of corporate securities.

We’ll look at the trade-offs issuers are considering when assessing the relative cost of different types of capital versus risk to the firm when trying to optimize capital structure. We’ll also learn how to calculate the after-tax cost of debt capital from straight debt and convertible debt, securities based on current borrowing rates as well as calculate the cost of equity capital using both a dividend discount approach and the capital asset pricing model (CAPM).

This course also looks at the potential issues regarding the cost of equity capital as computed via CAPM as it relates to values used for equity betas, market risk premium and choice of risk-free rate and explain the connection between common stock betas and company leverage, adjust beta for different degrees of leverage in capital structures and describe potential applications of adjusted betas.

We’ll learn how to calculate weighted-average cost of capital (WACC) and discuss the potential impact on WACC due to changes in capital structure, dividend policy or investment policy.

We’ll wrap up the course with a look at the rationale for use of WACC or the cost of equity capital in a discounted cash flow valuation, including what cash flow measure either would be appropriate for valuing.

This course is part 2 of the New York Institute of Finance’s Corporate Finance & Valuation Methods Professional Certificate.

What's inside

Learning objectives

Factors influencing the cost of capital
Cost of debt capital
Cost of convertible debt

Cost of equity
Implications of cost of capital for corporate & funding decisions

Factors influencing the cost of capital
Cost of debt capital
Cost of convertible debt
Cost of equity
Implications of cost of capital for corporate & funding decisions

Good to know

Know what's good

, what to watch for

, and possible dealbreakers

Explores factors that determine the cost of capital for a firm, including sources of financing

Examines different approaches to calculating the cost of debt and equity capital, including post-tax and adjustment for leverage

Provides insights into the weighted-average cost of capital (WACC) and its role in capital structure decisions

Highlights the importance of considering the cost of capital when making investment and funding decisions

Utilizes the capital asset pricing model (CAPM) to calculate the cost of equity

Taught by Douglas Carroll, an instructor with extensive experience in corporate finance

This course is part of the Corporate Finance & Valuation Methods Professional Certificate

Activities

Be better prepared before your course. Deepen your understanding during and after it. Supplement your coursework and achieve mastery of the topics covered in Cost of Capital with these activities:

Review Probability and Statistics

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Refresher on probability and statistics to strengthen foundation for CAPM.

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Review concepts of probability and random variables
Practice solving probability and statistics problems

Review Brealey and Myers

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Review Brealey and Myers to ensure strong foundation in corporate finance.

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Read Chapters 1-3
Complete end of chapter questions
Identify key concepts and formulas

CAPM Tutorial

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Supplement understanding of CAPM through online tutorials.

Browse courses on Capital Asset Pricing Model

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Review CAPM concepts and formulas
Apply CAPM to real-world investment scenarios

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Cost of Capital Calculations

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Reinforce understanding of cost of capital calculations through practice.

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Calculate cost of debt for various bond scenarios
Calculate cost of equity using dividend discount model and CAPM
Calculate WACC for different capital structures

Discussion Forum Participation

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Engage with peers to discuss course concepts and reinforce learning.

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Participate in weekly discussion forums
Contribute thoughtful questions and responses

Financial Modeling Project

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Apply cost of capital concepts in a practical financial modeling project.

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Develop financial projections for a company
Calculate cost of capital for different financing options
Evaluate capital budgeting projects using WACC
Present findings and recommendations

Cost of Capital Compilation

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Compile resources and tools related to cost of capital for future reference.

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Gather articles, videos, and online resources
Organize and review materials for future use

Stock Valuation Project

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Apply cost of capital concepts in a practical stock valuation project.

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Select a publicly traded company
Estimate the company's cost of capital
Value the company using discounted cash flow analysis
Compare valuation results with market price

Career center

Learners who complete Cost of Capital will develop knowledge and skills that may be useful to these careers:

Economist

Economists study the economy and economic issues. They use economic models and data to analyze economic trends and make predictions. This course may be useful for Economists seeking to build a foundation in the Cost of Capital, which is an important factor in economic growth and development.

See salaries and explore the career path for Economist

Quantitative Analyst

Quantitative Analysts use mathematical and statistical models to analyze financial data. They support investment decisions and risk management. This course may be useful for Quantitative Analysts seeking to build a foundation in the Cost of Capital, which is necessary for developing financial models.

See salaries and explore the career path for Quantitative Analyst

Asset Manager

Asset Managers manage assets for clients. They invest in a variety of assets, such as stocks, bonds, and real estate. This course may be useful for Asset Managers seeking to build a foundation in the Cost of Capital, which is necessary for determining the value of an investment portfolio.

See salaries and explore the career path for Asset Manager

Professor of Finance

Professors of Finance teach and conduct research in finance. They specialize in various areas of finance, such as corporate finance, investments, and financial risk management. This course may be useful for Professors of Finance seeking to build a foundation in the Cost of Capital, which is a core concept in finance.

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Fund Manager

Fund Managers manage investment funds. They invest in a variety of assets, such as stocks, bonds, and real estate. This course may be useful for Fund Managers seeking to build a foundation in the Cost of Capital, which is necessary for determining the value of an investment fund.

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Investment Manager

Investment Managers manage investment portfolios for clients. They allocate assets, select investments, and manage risk. This course may be useful for Investment Managers seeking to build a foundation in the Cost of Capital, which is necessary for determining the expected return of an investment.

See salaries and explore the career path for Investment Manager

Financial Risk Manager

Financial Risk Managers manage financial risk for companies and financial institutions. They identify, assess, and mitigate risk. This course may be useful for Financial Risk Managers seeking to build a foundation in the Cost of Capital, which is necessary for quantifying financial risk.

See salaries and explore the career path for Financial Risk Manager

Corporate Finance Analyst

Corporate Finance Analysts support companies in making financial decisions. They evaluate investment opportunities, manage risk, and raise capital. This course may be useful for Corporate Finance Analysts seeking to build a foundation in the Cost of Capital, which is necessary for making financial decisions.

See salaries and explore the career path for Corporate Finance Analyst

Financial Advisor

Financial Advisors provide financial advice and guidance to individuals and families. They help clients with investment planning, retirement planning, and estate planning. This course may be useful for Financial Advisors seeking to build a foundation in the Cost of Capital, which is necessary for providing sound financial advice.

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Venture Capitalist

Venture Capitalists provide funding to early-stage companies. They evaluate investment opportunities and manage risk. This course may be useful for Venture Capitalists seeking to build a foundation in the Cost of Capital, which is necessary for determining the value of an early-stage company.

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Equity Research Analyst

Equity Research Analysts provide research and analysis on companies to support investment decisions. This course may be useful for Equity Research Analysts seeking to build a foundation in the Cost of Capital, which is necessary for determining the value of a company.

See salaries and explore the career path for Equity Research Analyst

Investment Banker

Investment Bankers guide companies through the process of raising capital. They also facilitate mergers and acquisitions. This course may be useful for Investment Bankers seeking to build a foundation in the Cost of Capital, which is necessary for determining the value of a company.

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Portfolio Manager

Portfolio Managers manage investment portfolios for clients. They allocate assets, select investments, and manage risk. This course may be useful for Portfolio Managers seeking to build a foundation in the Cost of Capital, which is necessary for determining the expected return of an investment.

See salaries and explore the career path for Portfolio Manager

Private Equity Analyst

Private Equity Analysts support Private Equity Investors in identifying, evaluating, and investing in private companies. This course may be useful for Private Equity Analysts seeking to build a foundation in the Cost of Capital, which is necessary for determining the value of a private company.

See salaries and explore the career path for Private Equity Analyst

Financial Analyst

Financial Analysts use their deep knowledge of financial statements, valuation, and financial modeling to support a variety of roles in finance. This course may be useful for Financial Analysts seeking to build a foundation in the Cost of Capital, which is a crucial component of financial modeling and valuation.

See salaries and explore the career path for Financial Analyst

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