... Understand thecostofcapital and the specific sources ofcapital associated with thecostofcapital • Determine thecostof debt and preference share capital • Calculate costof ordinary share capital, ... / Principles of Managerial Finance / 6th edition Weighted Average CostOfCapital Duchess Limited has calculated the costs ofthe various types ofcapital to be: The company uses the following ... next dollar of total new financing Is an increasing function ofthe level of total new financing The ‘break point’ is the level of total new financing at which thecostof one ofthe financing...
... shows that thecostofcapitalofthe firm depends on four factors: the risk free rate, the aggregate risk tolerance ofthe market, the expected cash flow ofthe firm, and the covariance ofthe firm’s ... b ) Clearly thecostofcapital for the firm will be somewhere in between thecostofcapital j for the riskless component and thecostofcapital for the risky component But if the firm’s expected ... increases the variance and covariances, which increases thecostofcapitalThe equilibrium is then the net of these two effects In our example, the overall effect decreases thecostof capital. 22...
... by the U.S Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis ofthe mid-1990s, the fabulous technology boom/bust cycle at the turn ofthe ... amid the wreckage ofthe 2008 crisis, 10 • THECOSTOF CAPITALISM with the Great Moderation dead, policy makers, business leaders, and investors need to come to understand the insights of Hyman ... economists joined together in a cele- bration ofthe Goldilocks economy With the dismal record ofthe 1970s as their point of comparison, mainstream analysts focused on the not-too-hot, not-too-cold...
... begun in the last cycle The lesson seemed simple: keep inflation low, ignore the financial markets unless they need rescue, and bask in the glory ofthe Great Moderation 78 • THECOSTOF CAPITALISM ... added to the Fed’s list of potentially destabilizing excesses Why? Sadly, it was not the force of ideas that carried the day It was the end ofthe Great Moderation The breathtaking nature ofthe financial ... requiring them to staff a commercial loan of ce 88 • THECOSTOF CAPITALISM Over the mid-1980s, thrifts became major buyers of junk bonds They did so with little serious analysis ofthe underlying...
... around the emperor’s palace in Tokyo was equal to the value 96 • THECOSTOF CAPITALISM of all the land in the state of California! The shares of Japanese car makers reached values that suggested these ... 104 • THECOSTOF CAPITALISM the one case imposing capital controls and in the other aggressively supporting not only the currency but the stock market too Those measures worked, though there ... bubble!” I looked at the others; they looked down at their shoes And for the remainder ofthe two hours the group exchanged pleasantries In the end the group decided that the big risk going forward,...
... years ofthe Great Depression He too was convinced at the time that he was doing the right thing 144 • THECOSTOF CAPITALISM In the United States, a vocal group of economists supported the ECB ... gripped the United States and then became a world recession The dynamics that precipitated the U.S recession, the global capital markets crisis, and the worldwide downturn, are the subject ofthe ... rates had forced even the most creative mortgage providers to lift their teaser rates thecostof money forced them to make the adjustment Bernanke’s Calamity and the Onset of U.S Recession • 141...
... writer ofthe insurance If things go as planned, the buyer pays the insurer the premium If things go awry, the insurer pays the buyer Either way, one ofthe two parties gets the money promised in the ... with the stock price valued at next to nothing, seemed to be the clear fate it faced But the Treasury and the Fed, I was convinced, 154 • THECOSTOF CAPITALISM recognized the severity ofthe ... 156 • THECOSTOF CAPITALISM By mid-2007, the CDO market had the implausibly high value of $55 trillion It amounted to a mountain of wagers about corporate bonds that dwarfed the value ofthe underlying...
... moment is the difference between the value of its assets and the value of its liabilities In Japan in the 1990s many bank assets fell in value by 80 percent In 182 • THECOSTOF CAPITALISM the United ... brain skills Looking through the details ofthe question to get to an overarching sense ofthe issue is at the heart of right brain thinking Out ofthe Mouths of Babes The best right brain thinking ... on the Eve ofthe Crisis • 175 • They train their sights on the real economy and inflation, giving Wall Street sideshow status The Taylor rule best captures their efforts The equation directs the...
... part ofthe mainstream formulation The simple truth is that theorists owe this to the policy-making world The sooner they deliver it, the better Global Policy Risks in the Aftermath ofthe 2008 ... free-flowing capital markets and the strong growth that they financed gave rise to the long string of successes that were celebrated throughout the 1990s and into the middle years ofthe first decade ofthe ... in the Aftermath ofthe 2008 Crisis • 211 housing markets would fall into deep depression That’s because ofthe dysfunctional state of affairs that now grips the world of housing finance Furthermore,...
... by the U.S Savings & Loan crisis, the collapse of Japan Inc after the stock market crash of 1990, the Asian crisis ofthe mid-1990s, the fabulous technology boom/bust cycle at the turn ofthe ... amid the wreckage ofthe 2008 crisis, 10 • THECOSTOF CAPITALISM with the Great Moderation dead, policy makers, business leaders, and investors need to come to understand the insights of Hyman ... economists joined together in a cele- bration ofthe Goldilocks economy With the dismal record ofthe 1970s as their point of comparison, mainstream analysts focused on the not-too-hot, not-too-cold...
... to owners of stock Moreover, 50 • THECOSTOF CAPITALISM because ofthe leveraged nature of their wagers, they lose substantial wealth and become rapid sellers The real economy is then hit with ... grips the developed world But the unprecedented progress ofthe past 25 years should be sufficient evidence for the Chinese that the boom and bust cycle is worth the ride 60 • THECOSTOF CAPITALISM ... anticipate Nonetheless, nearly everyone spends part ofthe day imagining an economic hereafter 46 • THECOSTOF CAPITALISM Most of us recognize that the future is unknowable But the need to make...
... begun in the last cycle The lesson seemed simple: keep inflation low, ignore the financial markets unless they need rescue, and bask in the glory ofthe Great Moderation 78 • THECOSTOF CAPITALISM ... added to the Fed’s list of potentially destabilizing excesses Why? Sadly, it was not the force of ideas that carried the day It was the end ofthe Great Moderation The breathtaking nature ofthe financial ... requiring them to staff a commercial loan of ce 88 • THECOSTOF CAPITALISM Over the mid-1980s, thrifts became major buyers of junk bonds They did so with little serious analysis ofthe underlying...
... around the emperor’s palace in Tokyo was equal to the value 96 • THECOSTOF CAPITALISM of all the land in the state of California! The shares of Japanese car makers reached values that suggested these ... 104 • THECOSTOF CAPITALISM the one case imposing capital controls and in the other aggressively supporting not only the currency but the stock market too Those measures worked, though there ... bubble!” I looked at the others; they looked down at their shoes And for the remainder ofthe two hours the group exchanged pleasantries In the end the group decided that the big risk going forward,...
... years ofthe Great Depression He too was convinced at the time that he was doing the right thing 144 • THECOSTOF CAPITALISM In the United States, a vocal group of economists supported the ECB ... gripped the United States and then became a world recession The dynamics that precipitated the U.S recession, the global capital markets crisis, and the worldwide downturn, are the subject ofthe ... rates had forced even the most creative mortgage providers to lift their teaser rates thecostof money forced them to make the adjustment Bernanke’s Calamity and the Onset of U.S Recession • 141...
... writer ofthe insurance If things go as planned, the buyer pays the insurer the premium If things go awry, the insurer pays the buyer Either way, one ofthe two parties gets the money promised in the ... with the stock price valued at next to nothing, seemed to be the clear fate it faced But the Treasury and the Fed, I was convinced, 154 • THECOSTOF CAPITALISM recognized the severity ofthe ... 156 • THECOSTOF CAPITALISM By mid-2007, the CDO market had the implausibly high value of $55 trillion It amounted to a mountain of wagers about corporate bonds that dwarfed the value ofthe underlying...
... part ofthe mainstream formulation The simple truth is that theorists owe this to the policy-making world The sooner they deliver it, the better Global Policy Risks in the Aftermath ofthe 2008 ... free-flowing capital markets and the strong growth that they financed gave rise to the long string of successes that were celebrated throughout the 1990s and into the middle years ofthe first decade ofthe ... in the Aftermath ofthe 2008 Crisis • 211 housing markets would fall into deep depression That’s because ofthe dysfunctional state of affairs that now grips the world of housing finance Furthermore,...
... to owners of stock Moreover, 50 • THECOSTOF CAPITALISM because ofthe leveraged nature of their wagers, they lose substantial wealth and become rapid sellers The real economy is then hit with ... grips the developed world But the unprecedented progress ofthe past 25 years should be sufficient evidence for the Chinese that the boom and bust cycle is worth the ride 60 • THECOSTOF CAPITALISM ... anticipate Nonetheless, nearly everyone spends part ofthe day imagining an economic hereafter 46 • THECOSTOF CAPITALISM Most of us recognize that the future is unknowable But the need to make...
... begun in the last cycle The lesson seemed simple: keep inflation low, ignore the financial markets unless they need rescue, and bask in the glory ofthe Great Moderation 78 • THECOSTOF CAPITALISM ... added to the Fed’s list of potentially destabilizing excesses Why? Sadly, it was not the force of ideas that carried the day It was the end ofthe Great Moderation The breathtaking nature ofthe financial ... requiring them to staff a commercial loan of ce 88 • THECOSTOF CAPITALISM Over the mid-1980s, thrifts became major buyers of junk bonds They did so with little serious analysis ofthe underlying...
... around the emperor’s palace in Tokyo was equal to the value 96 • THECOSTOF CAPITALISM of all the land in the state of California! The shares of Japanese car makers reached values that suggested these ... 104 • THECOSTOF CAPITALISM the one case imposing capital controls and in the other aggressively supporting not only the currency but the stock market too Those measures worked, though there ... bubble!” I looked at the others; they looked down at their shoes And for the remainder ofthe two hours the group exchanged pleasantries In the end the group decided that the big risk going forward,...