The Basic Approach

We start with a simple case. The Spatt Company, an all-equity firm, has a cost of equity of 20 percent. Because this firm is 100 percent equity, its WACC and its cost of equity are the same. Spatt is contemplating a large-scale $100 million expansion of its existing operations. The expansion would be funded by selling new stock.

Ross et al.: Fundamentals I VI. Cost of Capital and I 15. Cost of Capital I I © The McGraw-Hill of Corporate Finance, Sixth Long-Term Financial Companies, 2002

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514 PART SIX Cost of Capital and Long-Term Financial Policy

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