The Cost of Capital(英文版)(ppt 40页)

The Cost of Capital(英文版)内容提要：
Should we focus on before-tax or after-tax capital costs?Stockholders focus on A-T CFs.
Therefore, we should focus on
A-T capital costs, i.e., use A-T costs in WACC.  Only kd needs adjustment.
Is preferred stock more or less risky to investors than debt?More risky; company not required to pay preferred dividend.
However, firms try to pay preferred dividend.  Otherwise, (1) cannot pay common dividend, (2) difficult to raise additional funds, (3) preferred stockholders may gain control of firm.
Why is yield on preferred lower than kd?Corporations own most preferred stock, because 70% of preferred dividends are nontaxable to corporations.
Therefore, preferred often has a lower B-T yield than the B-T yield on debt.
The A-T yield to an investor, and the A-T cost to the issuer, are higher on preferred than on debt.  Consistent with higher risk of preferred.

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