• Unit 5: Corporate Capital Structure, Cost of Capital, and Taxes

    Does it matter whether a company's assets are being financed with 50% from a bank loan and 50% from investors' money? Does that form of capital structure, where 50% of assets comes from debt and 50% from equity, influence how a company succeeds in business? This unit addresses these questions by focusing on the theory of capital structure. Specifically, Unit 5 explains the concept of capital structure and introduces you to the most common formula used when comparing a company's return to the cost of capital: The weighted average cost of capital (WACC). Also, Unit 5 exposes the concept of how tax policy affects a company's true cost of capital.

    Completing this unit should take you approximately 2 hours.

    • Upon successful completion of this unit, you will be able to:

      • explain the different components of a company's capital structure;
      • explain the Modigliani-Miller theorem in finance;
      • compute the market value and book value of a company; and
      • apply the WACC formula for estimating a company's cost of capital.

    • 5.1: Capital Structure Finance Theory

    • 5.2: Cost of Capital and Capital Structure: WACC

    • Unit 5 Assessment

      • Unit 5 Assessment Quiz

        Please take this assessment to check your understanding of the materials presented in this unit.

        Notes:

        • There is no minimum required score to pass this assessment, and your score on this assessment will not factor into your overall course grade.
        • This assessment is designed to prepare you for the Final Exam that will determine your course grade. Upon submission of your assessment you will be provided with the correct answers and/or other feedback meant to help in your understanding of the topics being assessed.
        • You may attempt this assessment as many times as needed, whenever you would like.