Cost of Capital and Cost of Equity | Business Finance

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This video explains two important concepts of business finance- cost of capital & cost of equity. First part of the video discusses on cost of capital drawing an example of a firm in terms of debt and equity. The cost of capital primarily depends upon the use of funds not the source. Next, the video briefly discusses on cost of equity referring the returns that investors holding shares in a firm require subsequent to an explanation on SML approach and dividend growth model.
Moving on the video also asks to calculate the cost of equity for an example of extremely prices shares. Step by step calculation has shown and ways to find out some important parameters are demonstrated visibly. Good understanding on cost of capital; cost of equity & there in between relationship as well as having knowledge on different methods of calculation is imperative to become an expert on today’s business finance and accountancy.

Пікірлер: 142

  • @hobbyhuman9499
    @hobbyhuman94992 жыл бұрын

    Holy eff, my professor is impossible to understand. This saved my life! He jumped right into the formulae before even explaining the concepts!

  • @zihanzhang675
    @zihanzhang6753 жыл бұрын

    12 hours away from taking my final exam. And I am still be here to learn the basics :)

  • @Tamara-ju3lh

    @Tamara-ju3lh

    2 жыл бұрын

    I hope it went well! I'm studying for the CPA (business section exam) and find myself coming back to the basics as well.

  • @yusufmld18

    @yusufmld18

    2 жыл бұрын

    well now me 1 hour away for my exam :D

  • @Axiom61

    @Axiom61

    2 жыл бұрын

    24 hours for my final exam lol

  • @kevinsolieff9686

    @kevinsolieff9686

    2 жыл бұрын

    @@Axiom61 FOR ME 12 HOURS AWAY FOR ME HAHAHH

  • @Axiom61

    @Axiom61

    2 жыл бұрын

    @@kevinsolieff9686 Good luck on your exam, you will ace it 😄

  • @ninagaby6569
    @ninagaby65697 жыл бұрын

    Thank you so much!! I had big trouble trying to understand and apply this concept, but you've made it so easy to understand! :D

  • @xinghuiteng9920
    @xinghuiteng99208 жыл бұрын

    this is the best video so fay I watched on Cost of Equity. Well done

  • @andread9362
    @andread93627 жыл бұрын

    omg thank you! ur explanation is so good and clear.. the end bit on how to find the dividend growth is super helpful!😊

  • @marymonika9920
    @marymonika99206 жыл бұрын

    U just made my mind so clear about these both topics which I'm not able to understand in my whole semester thank uh ! My clg sucks

  • @SEEpath-kt7jm
    @SEEpath-kt7jm8 жыл бұрын

    Thank you home boy.....Saved me 2 hours of pain.....appreciate the clear explanation :)

  • @milaakdeniz6317
    @milaakdeniz63177 жыл бұрын

    I like the way you teach. It depends on fundamental basics. Thank you.

  • @jiaozhang6563
    @jiaozhang65638 жыл бұрын

    Thank you very much. The explanation is so good and clear.

  • @user-nb7sw6qs2j
    @user-nb7sw6qs2j7 жыл бұрын

    This is the first video that made me understand. Thanks alot for kind explanations

  • @robertyoung406
    @robertyoung4064 жыл бұрын

    I'm terrible with definitions so I keep forgetting that Re is the COST. The business must have a return greater than their Re value if they want to be profitable. Thanks for the straightforward video!!

  • @NayanDX9
    @NayanDX98 жыл бұрын

    the video is well-informed :)

  • @gowris4484
    @gowris44844 жыл бұрын

    Thanks and happy that I found this video - clear explanation of concept

  • @yasmeenn4332
    @yasmeenn43323 жыл бұрын

    Thankyouu!! My professor cant explain anything, and i was relying on myself to learn from a book, thankyou so much you make it easy

  • @michaelsimmons5401
    @michaelsimmons54015 жыл бұрын

    Thanks, excellent lesson!

  • @SuperGrey95
    @SuperGrey958 жыл бұрын

    Best explanation ever !!

  • @boiledpotato9826
    @boiledpotato98267 жыл бұрын

    well informed and clear video. thanks.

  • @user-od5uz7xx1e
    @user-od5uz7xx1e Жыл бұрын

    Thank you for helping me understand the basics.

  • @niki7159
    @niki71594 жыл бұрын

    This is very helpful. Simplicity is the best.

  • @TheZeroskull3
    @TheZeroskull38 жыл бұрын

    very nice job ! helped me alot

  • @prabhjotkaur6729
    @prabhjotkaur67297 жыл бұрын

    thank you so much this video helped me alot:)

  • @roy12386
    @roy12386 Жыл бұрын

    super useful video thanks

  • @lisamhango4386
    @lisamhango4386 Жыл бұрын

    Well explained. Thank you

  • @user-iy7zs9go8t
    @user-iy7zs9go8t3 жыл бұрын

    great content, keep it up!!

  • @yositasunintaboon4455
    @yositasunintaboon44553 жыл бұрын

    thank you so much for sharing this helpful video

  • @manfredpurkarthofer7862
    @manfredpurkarthofer78625 жыл бұрын

    Thanks for the genius art of explaining this topic!

  • @commerceandfinanceacademy

    @commerceandfinanceacademy

    4 жыл бұрын

    1).kzread.info/dash/bejne/ZpV2zKmlldqukco.html :- Cost of Equity for Dividend paying firms within 6 mins :) 2).kzread.info/dash/bejne/qHeTrsdrhJqzdsY.html :- Cost of Capital Introduction with brilliant PPT animation.

  • @Thankyouobamabasedgod
    @Thankyouobamabasedgod6 жыл бұрын

    thanks for the help mate

  • @shreepadpurkar9835
    @shreepadpurkar98354 жыл бұрын

    Well explained , step by step in a simple manner. Thanks a lot .

  • @commerceandfinanceacademy

    @commerceandfinanceacademy

    4 жыл бұрын

    1).kzread.info/dash/bejne/ZpV2zKmlldqukco.html :- Cost of Equity for Dividend paying firms within 6 mins :) 2).kzread.info/dash/bejne/qHeTrsdrhJqzdsY.html :- Cost of Capital Introduction with brilliant PPT animation.

  • @hariharansekar6026
    @hariharansekar60263 жыл бұрын

    Amazing explanation

  • @nicholasseah8068
    @nicholasseah80682 жыл бұрын

    Beautiful, truly

  • @yamenomeira2158
    @yamenomeira21586 жыл бұрын

    thank you very match thanks to your explanation

  • @reactionswithreitumetse3790
    @reactionswithreitumetse37902 жыл бұрын

    Great video

  • @AnikiSiari
    @AnikiSiari8 жыл бұрын

    Where has this been all semester long?!?!?!?!?! I'm studying for my final exams!!!

  • @ramyshaaban685

    @ramyshaaban685

    5 жыл бұрын

    summarizing the whole semester in 13 minutes :)

  • @Pages_Perfected

    @Pages_Perfected

    3 жыл бұрын

    i'm in my first lesson and HELP

  • @monicarutanhira8896
    @monicarutanhira88966 жыл бұрын

    so helpful...one of the best explanatons

  • @3dforex84
    @3dforex844 жыл бұрын

    When watching this video I feel like I have graduated already. So excellent

  • @muhammadumerkhan7420
    @muhammadumerkhan74205 жыл бұрын

    Very helpful

  • @dalyasalama2506
    @dalyasalama25062 жыл бұрын

    hii there on the last part how did you calculate the value of g i couldnt understand

  • @nsadriana3153
    @nsadriana31534 жыл бұрын

    Thank you so much

  • @gontsemokone64
    @gontsemokone64 Жыл бұрын

    get i get link for one where you use SML Approach to calcululate cost of capital

  • @masontrappe8216
    @masontrappe82166 жыл бұрын

    the video has helped alot would you be able to do one about using the CAPM formula, will be much appreciated

  • @dailyfuel5810
    @dailyfuel58105 жыл бұрын

    Love u man from India ❤

  • @meryaltamirano8681
    @meryaltamirano86816 жыл бұрын

    Good video ! I understand !!! Where Is your video about cost of debt?

  • @thiquynhgiaongo2974
    @thiquynhgiaongo29742 жыл бұрын

    thank you a lot

  • @ntcuong01ct1
    @ntcuong01ct13 жыл бұрын

    Dear friends, I have a question: Could you explain the relationship between Capital structure and company value?. Thanks.

  • @littleoldme8030
    @littleoldme80307 жыл бұрын

    I wish you were my professor :D

  • @eltajbabazade1189
    @eltajbabazade11894 жыл бұрын

    Thank you 🙏

  • @3650days
    @3650days11 ай бұрын

    👍🏻👍🏻 thanks so much! 2:30 our cost is their return

  • @thuscomeguerriero
    @thuscomeguerriero6 жыл бұрын

    Good penmanship!

  • @felixmaume5641
    @felixmaume56413 жыл бұрын

    outstanding......................

  • @hashemeshanouq7351
    @hashemeshanouq73516 жыл бұрын

    Well done

  • @EhsnSuri9
    @EhsnSuri92 жыл бұрын

    Which marker/pen is that? It writes so nicely

  • @prem52000
    @prem52000 Жыл бұрын

    Wonderful presentation. The only correction i find is the growth from 2010 to 2011 which was $2 to $8 results to 300% hence the average of 67.5% should be corrected to 100.83%.

  • @bobagorof

    @bobagorof

    Жыл бұрын

    I found this presentation pretty painful to watch. Repeating basic concepts and covering them really slowly, then bringing in a magic formula without explanation as to how it was derived, and plugging some numbers in without explaining why the resulting figure is important rather than, say, 1% less. A definitive statement that what is important about cost of equity is what you're using it for (not who gave it to you... which would include their expected return), again without explaining the reasoning behind it. Very poorly paced or explained, in my opinion. And that's not even mentioning the repeated mispronunciation of "debt".

  • @meaya7
    @meaya76 жыл бұрын

    thank you fpr spoon feeding me sir!

  • @davidndirangu4414
    @davidndirangu44143 жыл бұрын

    Thanks so much the growth factor was an issue

  • @radhikagoel6268
    @radhikagoel62686 жыл бұрын

    Hey where are other videos?

  • @ronaldyeo8277
    @ronaldyeo827711 ай бұрын

    This is a really great video. So just to clarify, D1 is the current dividend, which is $3 x 107%?

  • @komorebiii__7636
    @komorebiii__76367 жыл бұрын

    thank you so much

  • @commerceandfinanceacademy

    @commerceandfinanceacademy

    4 жыл бұрын

    1).kzread.info/dash/bejne/ZpV2zKmlldqukco.html :- Cost of Equity for Dividend paying firms within 6 mins :) 2).kzread.info/dash/bejne/qHeTrsdrhJqzdsY.html :- Cost of Capital Introduction with brilliant PPT animation.

  • @jyotiyadav2449
    @jyotiyadav24493 жыл бұрын

    Cost of convertible preference shares in wacc?

  • @leratolikhomo1649
    @leratolikhomo16496 жыл бұрын

    I subscribed. Sir I like yoooouuuuuuuu.

  • @fresa5438
    @fresa54382 жыл бұрын

    mantap terimakasih (thank you)

  • @HK-ri9bh
    @HK-ri9bh3 жыл бұрын

    Thank youu

  • @alexrfhk1634
    @alexrfhk16342 жыл бұрын

    I have a question on how to find ‘g’. From 2010 to 2011, there is 2 to 8 which should be 300% increase. Why it is 200%?

  • @sarahshehata3267
    @sarahshehata32674 жыл бұрын

    greattttt ..where is the rest of this series plzzz

  • @FireWorksInJuly
    @FireWorksInJuly2 жыл бұрын

    I don’t understand how you calculated g at the end of the video to be 64% but in your example it was only 7%. Can you explain?

  • @akt2948
    @akt29484 жыл бұрын

    Man are u always great like that 😁👍🏼

  • @commerceandfinanceacademy

    @commerceandfinanceacademy

    4 жыл бұрын

    1).kzread.info/dash/bejne/ZpV2zKmlldqukco.html :- Cost of Equity for Dividend paying firms within 6 mins :) 2).kzread.info/dash/bejne/qHeTrsdrhJqzdsY.html :- Cost of Capital Introduction with brilliant PPT animation.

  • @palavvrushali4975
    @palavvrushali49756 жыл бұрын

    any suggestion of a cost of capital

  • @chrisweber759
    @chrisweber7596 жыл бұрын

    If a company uses cash from it's retained earnings would that still count as equity and what would it's cost be?

  • @gamingonly7679
    @gamingonly76797 жыл бұрын

    The growth rate between 2011 and 2010 is 300%?? (2011-2010)/2010? or i am calculate at the wrong way

  • @IMikeyyP

    @IMikeyyP

    7 жыл бұрын

    Yes it's 300% you are correct.

  • @bggunny6895

    @bggunny6895

    7 жыл бұрын

    yup 300%

  • @machoocho1

    @machoocho1

    6 жыл бұрын

    Same here... I think its 300%.

  • @Shamikism

    @Shamikism

    6 жыл бұрын

    got them correct.

  • @samaysoni4015

    @samaysoni4015

    5 жыл бұрын

    Yup

  • @josejade2152
    @josejade21522 жыл бұрын

    Yr 2010 to Yr 2011 the growth rate is 300% not 200% right? Correct me if im wrong.

  • @deji2779
    @deji27796 жыл бұрын

    How do you find the average?

  • @kentheengineer592
    @kentheengineer5922 жыл бұрын

    how to establish ownership of any thing before the project begins is what holds people back from starting a business

  • @tahmidkamal2203
    @tahmidkamal22035 жыл бұрын

    Hi very effective vedio. What is the name of a book book for only to be expert easily on the topic " Cost of Capital " ??

  • @kanishk2643
    @kanishk26437 жыл бұрын

    What about new companies who don't have share in the market? How do you estimate the Po in the equation unless, there is some other method....?

  • @RahulSingh-os2cl

    @RahulSingh-os2cl

    4 жыл бұрын

    Then, there will be no Equity. So, no need of Ke

  • @renzeldiabo5889
    @renzeldiabo58892 жыл бұрын

    Where is the part 2

  • @kentheengineer592
    @kentheengineer5922 жыл бұрын

    actually you need to pay people but it doesn't have to be money, businesses prefer money because cash is usually a type of promissory note that has been secured thus it's called a security, if the issuer of money is unable to repay it's debts then based on litagation and corperate liability the assets will be used to discharge the debt and repay the creditor otherwise the creditor is at risk to take a Loss is based on certain types of promissory notes or types of bills of exchange that can be all traded for banknotes on demand by calling the BEP and making a deal with them

  • @kentheengineer592
    @kentheengineer59211 ай бұрын

    1:12 a bit of a misunderstanding really allow me to explain ppl can be paid using deffered assets that can be leased in exchange for labor so

  • @trevorkevinsweeney9099
    @trevorkevinsweeney90993 жыл бұрын

    My exam is in an hour I am going through this 😭😂😂😂 thank you

  • @chunluo6033
    @chunluo60335 жыл бұрын

    better than my teather

  • @NA-cx8of
    @NA-cx8of7 жыл бұрын

    Ok so I know my cost of equity is 15%. Do I compare it to Return on Equity or Return on Investment?

  • @chizomamangela847

    @chizomamangela847

    3 жыл бұрын

    Thanks a lot sir. Your lecture was very useful to me on Do and D1

  • @alikaraca163
    @alikaraca163 Жыл бұрын

    Nice presentation but I gotta make some corrections. In your formula, P0 and D0 represent the same year, to the extent that I understand in your formula. if so, the share price's year and dividend of $3 last year mismatch in your question which is not correct. Because when you apply the growth model formula the share price you are finding is the current year. But, you are saying the current year is last year which is not.

  • @ntcuong01ct1
    @ntcuong01ct13 жыл бұрын

    I have a question: cost of capital = net revenue * WACC, right?.

  • @khosi_leighlifestyle8846
    @khosi_leighlifestyle88463 жыл бұрын

    What does SML stands for?

  • @prem52000

    @prem52000

    Жыл бұрын

    The security market line

  • @redpen_24
    @redpen_248 жыл бұрын

    thank you boy. . . :-)

  • @innocentnyamongo4745

    @innocentnyamongo4745

    5 жыл бұрын

    Hi

  • @anjaliiii689
    @anjaliiii6895 жыл бұрын

    B is silent in debt ... we call it det ..

  • @stfds7857
    @stfds78576 жыл бұрын

    you were too cute m8, wish you used CAPM though because that's what i need help with zjzjsjsj

  • @anjaliiii689
    @anjaliiii6895 жыл бұрын

    Are you Rob Stark??? Your accent is exactly like him .. i love your voice too !! Marry me

  • @mithleshgajar8621

    @mithleshgajar8621

    4 жыл бұрын

    This is happening too much.

  • @commerceandfinanceacademy

    @commerceandfinanceacademy

    4 жыл бұрын

    1).kzread.info/dash/bejne/ZpV2zKmlldqukco.html :- Cost of Equity for Dividend paying firms within 6 mins :) 2).kzread.info/dash/bejne/qHeTrsdrhJqzdsY.html :- Cost of Capital Introduction with brilliant PPT animation.

  • @swathivadlamani7448
    @swathivadlamani74484 жыл бұрын

    I still wonder how you got 200%, 37.5 and 40%?

  • @VaibhavBirange993
    @VaibhavBirange9935 жыл бұрын

    Does anyone find this guy's voice similar to Jesse Pinkman? Or is it just me?

  • @alexandervoronin5323
    @alexandervoronin53233 жыл бұрын

    What happens if a company becomes so profitable it can repay all of its debt and buyback all of its equity?

  • @Sky-pg6xy
    @Sky-pg6xy3 жыл бұрын

    Why is 2$ to 8$ 200% and not 300%?

  • @romeshkirpalani848
    @romeshkirpalani8484 жыл бұрын

    2014 and still using calculator and paper...forget about equity or debt....there will be no growth man...

  • @dougzembiec9995
    @dougzembiec99957 жыл бұрын

    growth rate is 51,83% BTW......

  • @shanebosch6403

    @shanebosch6403

    7 жыл бұрын

    Doug Zembiec no, he is correct. The growth was for three years, not four. It doesn't mean that because there's 4 years that you divide by 4, as 2010 was the base year in this example.

  • @MissIsabelleEwah

    @MissIsabelleEwah

    6 жыл бұрын

    he was wrong. He put 200 instead of 300% rise from year 2010-2011.

  • @MEHBOOBZARGAR
    @MEHBOOBZARGAR7 жыл бұрын

    anyone here to solve a question??

  • @Pages_Perfected
    @Pages_Perfected3 жыл бұрын

    HELP HELP HELP HELP

  • @padraigmoloney5952
    @padraigmoloney59527 жыл бұрын

    Debt is pronounced like 'death'. You are pronouncing it like 'depth'.

  • @normanclayton6015

    @normanclayton6015

    7 жыл бұрын

    17

  • @marymonika9920
    @marymonika99206 жыл бұрын

    U just made my mind so clear about these both topics which I'm not able to understand in my whole semester thank uh ! My clg sucks