Funding and cost of capital
Where a company's money comes from and what it costs. These lessons start with the choice between borrowing and owners' money, put a price on each, blend the two into a cost of capital, and end with how profit is returned to owners.
The real example is Apple's fiscal 2025 accounts: its book and market leverage, the rates on its notes, its tax rate, and a payout larger than its free cash flow. Where an input is a judgement, such as a beta or a risk premium, the lesson says so and shows how much the answer moves.
5 lessons, about 2 hours 10 minutes of reading in all. Start at the top and go in order.
After this module you will be able to
- explain how debt and equity differ and how borrowing changes the return to owners
- work out the after-tax cost of debt and the interest tax shield
- estimate a cost of equity with CAPM and test it against a share price
- build a WACC, and say why market weights are used
- read a company's dividends and buybacks against its free cash flow
The lessons
- Capital StructureHow the mix of debt and equity changes returns and risk, with a live leverage calculator and a look at Apple's balance sheet on book and market bases.
- Cost of DebtHow to find the cost of debt, why interest costs less after tax, and when the tax shield shrinks, with a live calculator and Apple's borrowing rates.
- Cost of Equity and CAPMHow to estimate the cost of equity with CAPM and the dividend growth formula, with a live calculator and what Apple's market value implies about growth.
- WACCHow to calculate WACC, why market weights matter, and why debt is not a free way to cut it, with a live calculator and Apple's cost of capital.
- Dividends and BuybacksHow dividends and buybacks return cash to owners, what a buyback does to earnings per share, and how Apple funded its fiscal 2025 payout. Live calculator.