The Cost of Capital

The cost of capital is the weighted average of the cost of equity and the cost of debt. It’s the rate both equity and debt investors demand as a return or the hurdle rate if you’re …

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The Cost of Debt

The cost of debt is the rate at which a company can borrow long-term today. It will reflect the firm’s default risk and the level of interest rates in the market. It is the sum …

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The Cost of Equity

The cost of equity is the return demanded for an individual equity. It’s the return needed for investors to compensate for equity risk, and it’s the cost of equity funding for the company. The cost …

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Beta & Relative Risk

We can add the risk-free rate and the equity risk premium to determine how much the market, or an average risk stock, will return. But what if our stock is more or less risky than …

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The Equity Risk Premium

The Equity Risk Premium is the premium investors charge for investing in the average risk equity over and above a risk-free investment. The ERP is a dynamic number that varies over time due to changes in …

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The Risk-Free Rate

The risk-free rate is a foundational element of investing. It’s the theoretical rate of return you can get investing in something that is guaranteed and has no risk. It’s a reference point in investing as …

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Micron: Consolidation and Cash Flows

There’s a lot that goes into valuing a company. I’ve valued fast-growing companies in my previous articles. Astute readers may have noticed I discounted the company’s cash flows, but I didn’t explain the method behind …

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