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#cfa-level-1 #corporate-finance #reading-36-cost-of-capital #taxes-and-cc
Estimating the cost of conventional preferred equity is rather straightforward because the dividend is generally stated and fixed, but estimating the cost of common equity is challenging.
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2.1. Taxes and the Cost of Capital
uity capital is more challenging than estimating the cost of debt capital. Debt capital involves a stated legal obligation on the part of the company to pay interest and repay the principal on the borrowing. Equity entails no such obligation. <span>Estimating the cost of conventional preferred equity is rather straightforward because the dividend is generally stated and fixed, but estimating the cost of common equity is challenging. There are several methods available for estimating the cost of common equity, and we discuss two in this reading. The first method uses the capital asset pricing model, and the second m


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