Sports Finance and Management

Capital Budgeting and Team Investments  ◾  407

k

W

=w

D

k

D

+w

E

k

E

where k

W

is the weighted cost of capital, w

D

and w

E

are the percentages of debt

and equity nance used, and k

D

and k

E

are the costs of debt and equity capital. If

preferred and common stock were both used, the weighted cost of capital should

account for their dierentiation as well.

It should be underscored that when facilities are built, an owner typically uses

bonds or cash. If a facility is completely nanced with a bond, then all of the cost

of capital comes from that instrument of debt. If cash is used, then the cost of

capital could be considered the return the owner would have received from the next

best investment. In most instances, owners rely on a mix of equity (ca