This note is an introduction to the cost of capital as used in discounted cash flow valuation analyzes. The note covers basic financial economic principles and practical problems in calculating the cost of capital, WACC, particularly encountered. It concludes with cautionary advice on the calculation and use of WACC. The note is suitable for students, MBAs and executives studying basic cases on corporate valuation and investment analysis.

This note is an introduction to the cost of capital as used in discounted cash flow valuation analyzes. The note covers basic financial economic principles and practical problems in calculating the cost of capital, WACC, particularly encountered. It concludes with cautionary advice on the calculation and use of WACC. The note is suitable for students, MBAs and executives studying basic cases on corporate valuation and investment analysis.
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Timothy A. Luehrman
11 pages.
Release Date: 20, November 2009. Prod #: 210037-PDF-ENG
Business Valuation and the Cost of Capital HBR case solution

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