The Real Cost of Capital: A field guide to better business decisions

“Capital is the lifeblood of any business and taking into account its cost is critical for sound decision-taking. This book provides a very accessible and comprehensive guide to the topic and should be of great value to all those involved in strategic and financial issues within business.”

Dr Andrew Sentance, chief economist, British Airways

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The cost of capital is the fundamental financial tool for business decision-making. It drives measures of value creation and destruction, and forms the basis of financial analysis using cash flow and other frameworks.

The Real Cost of Capital takes a practical approach and describes the key issues in understanding and using the cost of capital today, taking principles from the world of managerial finance and putting them into the context of major investment decisions.

Should, for example, a company use its own cost of capital to appraise new investments and acquisitions? What cost of capital might a US company use when appraising an investment in, say, the Philippines? For a typical investment, which type of risk is more important – specific risk or systematic risk? How should these risks be reflected in, say, a venture capital situation? Debt is cheaper than equity – so why don't companies raise more debt than they do? This book will help you find the answers.

Prologue: The Cost of Capital World is a Real World

Chapter 1: Risk and Return Revisited

Chapter 2: CAPM @ Work

Chapter 3: The Great EMRP Debate

Chapter 4: CAPM is Dead: Long Live CAPM

Chapter 5: The Cost of Debt and Optimal Capital Structure

Chapter 6: International WACC and Country Risk

Chapter 7: Cash Flows, the Dot.Com Bubble and All That

Chapter 8: Using the Cost of Capital in Business Valuations

Chapter 9: International Valuation and Appraisal

Chapter 10: Premia and Discounts