Summary of Notation - Financial Management

Before beginning the discussion of the cost of capital, it is helpful to summarize the important elements of notation used throughout this chapter.

rf = riskless (risk-free) rate of return; the return offered on short-term U.S. Treasury securities
kd = pretax cost of debt
ki = after-tax cost of debt
kp = cost of preferred stock
ke = cost of internal common equity
k_e = cost of external common equity
ka = weighted (marginal) cost of capital
P0 = the current market price of a security
Pnet = the net proceeds to the firm from the sale of a security
Pf = market value of a firm’s preferred stock
E = market value of a firm’s common equity
B = market value of a firm’s debt in its capital structure
rm = expected return on the “market” portfolio
b = the beta (systematic risk) of a company’s stock


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Financial Management Topics