# Syllabus

Title
0577 Course V - Estimating the Cost of Capital
Instructors
o.Univ.Prof. Dr. Stefan Bogner
Contact details
Type
PI
Weekly hours
2
Language of instruction
Englisch
Registration
09/14/23 to 09/27/23
Registration via LPIS
Notes to the course
Subject(s) Bachelor Programs
Dates
Day Date Time Room
Tuesday 10/24/23 10:15 AM - 02:00 PM D4.0.019
Tuesday 10/31/23 10:15 AM - 02:00 PM D4.4.008
Tuesday 11/07/23 10:15 AM - 02:00 PM D4.4.008
Tuesday 11/21/23 10:15 AM - 02:00 PM D4.4.008
Tuesday 12/05/23 10:15 AM - 02:00 PM D4.4.008
Tuesday 12/19/23 10:15 AM - 02:00 PM D4.4.008

Contents

The Equity Cost of Capital

• The Market Portfolio, Beta Estimation
• Gordon Growth Model
• Dividend Futures

The Debt Cost of Capital

A Project’s Cost of Capital

Learning outcomes
• Estimate a company's equity cost of capital using the Security Market Line from the CAPM.
• Describe the market portfolio and how it is constructed in practice.
• Describe common proxies for the market return and the risk-free rate.
• Estimate a company's equity cost of capital using the Gordon Growth Model.
• Estimate a company's equity cost of capital using Dividend Futures.
• Estimate the cost of debt, given a company's yield to maturity, probability of default, and expected loss rate.
• Discuss the difference between the yield to maturity and the cost of debt when there high default risk.
• Calculate the cost of debt given a company's debt beta, the risk free rate, and the market risk premium.
• Illustrate the use of comparable companies' unlevered betas or unlevered cost of capital to estimate a project's cost of capital.
• Discuss the advantages of using several companies' betas to estimate a project beta.
• Define operating leverage and discuss its influence on project risk.
• Calculate the weighted average cost of capital.
Attendance requirements

Full attendance is compulsory. This means that students have to take part in all 4 projects and all 4 tests. Students have to attend at least 80% of all lectures, at most one lecture can be missed without excuse.

Teaching/learning method(s)

Estimating the Cost of Capital builds on the courses I and II of Finance: Market, Institutions and Instruments.

With the knowledge from the courses I and II of Finance: Market, Institutions and Instruments (CAPM, Yield to Maturity, Ratings, Gordon Growth Model) we will learn to estimate the firm's cost of capital.

An important part of the course is to apply what we learned. We will form teams in which you analyze a given firm out of a given industry. This analysis will be divided into 4 projects.

For all projects each team has to prepare a presentation. Findings and presentations have to be uploaded in time @Canvas. In class randomly chosen teams will present their findings.

In addition, the course is accompanied by 4 short individual tests in class.

Assessment

• Case study (=analyzing a company) divided into 4 projects (4 times 15 points)
• 4 inclass tests (4 times 10p)
• positive grades: (1) >= 87.5p, (2) >= 75p, (3) >= 62.5p,  (4) >= 50p
• negative grade: (5) <50p or missing attendence requirements
Prerequisites for participation and waiting lists

Courses I and II of Finance: Market, Institutions and Instruments.

Recommended previous knowledge and skills

Courses I and II of Finance: Market, Institutions and Instruments.

Availability of lecturer(s)

Consultation hours by appointment via email (stefan.bogner@wu.ac.at).

Last edited: 2023-12-18

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