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Published on Jun 15, 2012
The weighted average cost of capital (WACC) methodology is a widely accepted method for calculating the allowed rate of return. Regulators use different models to set the allowed cost of capital. This section explains the models and their practical application.
Definition of cost of capital : WACC / Cost of equity / Cost of debt / Capital structure (gearing) / Treatment of taxes Quantification of cost of capital : CAPM (Capital Assets Pricing Model) / Price Arbitrage Theory / Dividend Growth Model / Comparable Earnings Model / "Precedent Case" Approach Financial Analysis