Ch 2 · Time Value of Money & Cost of Capital

5 concept points · 6 formulas · 4 exam-critical points.

📘 Core concepts

• 1Compound interest accumulates wealth; discounting brings future to present.
• 2Cost of capital: minimum return to compensate suppliers of capital.
• 3WACC: weighted average of after-tax cost of debt, preference, equity.
• 4CAPM for cost of equity: Rf + β(Rm − Rf).
• 5Marginal cost of capital relevant for new investment decisions.