Cost of Capital & Investment Evaluation

Overview

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Learn how to calculate and apply the cost of capital to make better investment and financing decisions. Build practical skills in CAPM and WACC used in real-world corporate finance. This course provides a structured approach to understanding how companies determine the cost of raising funds through debt and equity. You will explore how interest rates, taxes, and risk influence financing decisions and overall capital structure. You will learn how to calculate the cost of debt, preferred equity, and common equity, and apply the Capital Asset Pricing Model (CAPM) to estimate required returns based on systematic risk. The course also focuses on Weighted Average Cost of Capital (WACC), helping you understand how companies combine different funding sources to determine an overall cost benchmark for investment decisions. Through step-by-step examples, you will learn how WACC is used to evaluate projects, compare investment opportunities, and adjust for different risk levels across business divisions. By the end of the course, you will be able to confidently calculate cost of capital, apply WACC in financial analysis, and support strategic corporate finance decisions.

Syllabus

Foundations of Cost of Capital

This module introduces the core concept of cost of capital and explains how companies determine the cost of debt financing. Learners explore key financial principles including required returns, tax effects on borrowing, flotation costs, and bond valuation using market interest rates.

Cost of Equity and Market-Based Returns

This module explores equity financing and explains how companies estimate the cost of preferred and common equity. Learners examine the Capital Asset Pricing Model (CAPM), understand systematic risk through beta, and apply financial models to estimate required shareholder returns.

Weighted Average Cost of Capital in Practice

This module focuses on calculating and applying the Weighted Average Cost of Capital (WACC) in real financial decision-making. Learners examine capital structure weighting, tax shields from debt, and the importance of using divisional costs of capital for evaluating projects with different risk profiles.