k p=
AT kd = kd (1-T)
Where: kd = The before-tax cost of debt
T = The firms marginal tax rate
Equation 9-3. Formula for the Cost of Common Stock Equity (ks)
(Dividend Growth Model Approach):
Dp
( P pF)
k s=
D1
+g
P0
companys
common stock dividends
Equation 9-4. CAPM Formula for the Cost of Common Equity (ks):
Equation 9-5. Formula for the Cost of New Common Equity (kn):
k s=k rf + ( k m k rf )
Where: ks = The required rate of return from the companys
common stock equity
krf = The risk-free rate of return
km = The expected rate of return on the overall stock
market
kn =
D1
+g
(P0F)
measure of
the amount of non-diversifiable risk
companys
common stock dividends
Equation 9-6. Formula for the Weighted Avg. Cost of Capital
(WACC):
D
V p= p
kp
BP=
Limit
Proportion of Total
k p=
Dp
Vp
k s=
D1
P 0=
k sg
Where: P0 = Current price of the common stock
D1 = Dollar amount of the common stock dividend one
year from now
ks = Required rate of return for this common stock
investment
D1
+g
P0
stock dividends
stock dividends
Equation for Modified IRR:
PV outflows =
TV inflows
n
(1+ MIRR)