Cost of Capital for a Firm
Originally published: 21/06/2016 11:07
Publication number: ELQ-22085-1
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Cost of Capital for a Firm

Estimate the cost of capital for your firm

"The cost of funds used for financing a business. Cost of capital depends on the mode of financing used – it refers to the cost of equity if the business is financed solely through equity, or to the cost of debt if it is financed solely through debt. Many companies use a combination of debt and equity to finance their businesses, and for such companies, their overall cost of capital is derived from a weighted average of all capital sources, widely known as the weighted average cost of capital (WACC). Since the cost of capital represents a hurdle rate that a company must overcome before it can generate value, it is extensively used in the capital budgeting process to determine whether the company should proceed with a project." (Investopedia)

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (

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1 Excel Model File, 1 ReadMe

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Further information

The objective of this model is to get the following outputs:

- Estimating Market Value of Straight Debt
- Estimated Value of Straight Debt in Convertible
- Value of Debt in Operating leases
- Estimated Value of Equity in Convertible
- Levered Beta for equity

For Equity, Debt, Preferred Stock, Capital

- Market Value
- Weight in Cost of Capital
- Cost of Component


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