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Introduction to Estimating the Cost of Capital

Lesson Questions and Answers2 Questions
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Morning. I'm looking for a ROI NPV IRR model for long term capital investment (like a power station). What components make up the total capital amount and what components (variables) determine the revenue return stream? Would appreciate a reply on Aug 26/27? thanks

Member's Profile

Hi Trish,

The standard free cash flow approach in ROI NPV IRR models considers the total fixed asset investment along with changes to net working capital (current assets less current liabilities but considering only operating cash not surplus cash) for the capital investment. On the revenue/income side, it would reflect all income statement components from revenue down to after-tax income but excludes interest income/expense, so taxes are computed on this revised definition of pre-tax income.

Jake

Instructor for this course
Course Syllabus
INTRODUCTION AND OVERVIEW
Estimating the COC
  WACC Method, CAPM, Beta and Market Risk8:59
  Linear Regression, Forecasting Beta, Unlevered and Project-Based COC13:50
  Beyond CAPM, Multifactor Models of Risk, and FFC 11:55
ADDITIONAL METHODS
  Other Approaches and Sources for Estimating the COC 5:54
SUPPORTING MATERIALS
  Slides: Estimating the Cost of CapitalPDF
  Estimating the Cost of Capital Glossary/IndexPDF
REVIEW & TEST
  REVIEW QUESTIONSquiz
 FINAL EXAMexam