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#cfa-level-1 #corporate-finance #reading-36-cost-of-capital
For a particular valuation model, if these cash flows are cash flows to the company’s suppliers of capital (that is, free cash flow to the firm), the analyst uses the weighted average cost of capital of the company in the valuation.
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2.3. Applying the Cost of Capital to Capital Budgeting and Security Valuation
acks as well, and the approach outlined has wide acceptance.4 For the analyst, the second key use of the marginal cost of capital is in security valuation using any one of several discounted cash flow valuation models available.5 <span>For a particular valuation model, if these cash flows are cash flows to the company’s suppliers of capital (that is, free cash flow to the firm), the analyst uses the weighted average cost of capital of the company in the valuation.6 If these cash flows are strictly those belonging to the company’s owners, such as the free cash flow to equity, or dividends, the analyst uses the cost of equity capital to find the pr


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