Study guide to determining the cost of capital 6 cost of capital measurement models

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Cost of capital#6 – Cost of Capital Measurement ModelsStudy Guide to Determining the Cost of Capital.Bachelor’s Degree in Finance and BankingWACC Capital Asset Pricing ModelAs studied, the Weighted Average Cost of Capital (WACC) is the average of the costs of allsources of financing from third parties and from the company itself. Its application facilitatesthe analysis of profitability and calculate the valor of the company. For its determination thereare different approaches that use endogenous and exogenous variables of the companyand that consider future flows in the form of dividends. These approaches will be exemplifiedbelow:The Capital Asset Pricing Model (WACC) focuses on the valuation of financial assets thatallows estimating the expected return based on systematic risk. So this model is based onthe equilibrium of the market, that is, that the offer of financial assets equals the demand(O = D) since its interaction will determine the price of the assets.A WACC ‘s portfolio also considers systematic risk (or non-diversifiablerisk) and nonsystematic risk (or diversified risk). The first is that risk assumed by all assets because theydepend on the market itself. The second refers to the risk that depends on factors directlyrelated to the company itself.It is important to mention that this model assumes the following assumptions about thebehavior of the markets and their investors:∙ Static, non-dynamic model. The consideration of the model is ab … Purchase document to see full attachment

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