Corporate Finance For Dummies, 2nd Edition

Chapter 17

Weighing Capital

IN THIS CHAPTER

Measuring weighted average cost of capital

Assessing the cost of debt

Evaluating the cost of equity

Determining the proper capital structure

Contrary to popular belief, not all debt is toxic. That's the mindset of many consumers, which is understandable: When you use debt to make your purchases, the interest you pay for those purchases represents a price distortion. That's considered a negative return on investment, because you're overpaying for the value you get in return. On the other hand, when you borrow money to invest in a machine that allows you to turn a profit, that's a good thing, as long as the return on investment is higher than the interest you pay on the loan.

Also contrary to popular belief, raising money by selling ownership of the company through initial public offerings of stock has costs associated with it. These costs affect those who have ownership in the company. You can't simply be given money for the growth or continued operations of a company without expecting to pay for it in one manner or another.

The goal of ...