In everyday life, long-term financial decisions should be guided by asking the simple question: Will the return to be obtained from making an investment exceeds the opportunity cost (cost of alternatives foregone) of undertaking it? It is common sense that nobody would start up in business in the knowledge that it would never earn a return greater than the opportunity cost to be incurred.
This opportunity cost is the cost of the capital and, at a very basic level, the principle of its application is simple to understand. Unfortunately, whilst simple in principle, establishing what this cost of capital is, or should be, in reality is fraught with problems as revealed in a study published in the Harvard Business Review (Do You Know Your Cost of Capital? by Michael T. Jacobs and Anil Shivdasani / July-Aug. 2012). As the authors identify: 'Although investment opportunities vary dramatically across companies and industries, one would expect the process of evaluating financial returns on investments to be fairly uniform.' The authors of the study show this not to be so and comment that: 'Respondents probably don’t know as much about their cost of capital as they think they do!'
In the financial word, the cost of capital plays a prominent role in many areas: project appraisal, project finance, company valuation, initial public offering pricing, mergers and acquisitions, buy-outs, performance measurement and value-based management.
This workshop will take you through the major theories, how to use them and how to overcome the practical challenges in estimating the cost of capital. It will draw upon academic theory and its application as a result of the personal experience of the workshop leader that was obtained working on projects in more than 75 countries over the last 25 years.
Who is this course for?
• Publicly traded companies
• Private companies
• Family businesses
• Strategic and financial advisory
• Private equity