Cost of capital

The blended return every provider of capital requires, used to discount cash flows that belong to all of them.

• Valuation

2 ideas that carry it

• TechniqueValuationVideo located

  A capital-structure-neutral cash flow needs a capital-structure-neutral discount rate

  Match the discount rate to the cash flow: a flow to all capital providers is discounted at the blended cost of all of them.

  The discount-rate questions in a DCF interview, and any model where the cash flow and the rate have been matched carelessly.

  From WACC Explained · The Finance Storyteller

• TechniqueCreditVideo located

  How much debt is the right amount: the cost-of-capital approach

  The right amount of debt minimises the blended cost of capital; the maximum a lender will provide is a different and larger number.

  LBO and leveraged finance questions on how much debt a deal can carry, and corporate finance questions on capital structure.

  From Session 18: Optimum Capital Structure — The Cost of Capital Approach · Aswath Damodaran (NYU Stern)