- CFA Exams
- Dec. 2020 Level 1
- Study Session 10. Corporate Finance I
- Reading 33. Cost of Capital

### Reading 33. Cost of Capital

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### Learning Outcome Statements

Reading 33. Cost of Capital | |
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1. Cost of Capitala. calculate and interpret the weighted average cost of capital (WACC) of a company;b. describe how taxes affect the cost of capital from different capital sources; c. describe the use of target capital structure in estimating WACC and how target capital structure weights may be determined; d. explain how the marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget;
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2. Cost of Debt and Preferred Stockf. calculate and interpret the cost of debt capital using the yield-to-maturity approach and the debt-rating approach;
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3. Cost of Common Equityh. calculate and interpret the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield-plus risk-premium approach; | |

4. Estimating Beta and Determining a Project Betai. calculate and interpret the beta and cost of capital for a project; | |

5. Country Riskj. describe uses of country risk premiums in estimating the cost of equity; | |

6. Marginal Cost of Capital Structurek. describe the marginal cost of capital schedule, explain why it may be upward-sloping with respect to additional capital, and calculate and interpret its break-points; | |

7. Flotation Costsl. explain and demonstrate the correct treatment of flotation costs. |