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Page 51 of 54 pages. Chapter: 3: Intro Module 2 More information about chapter

Introduction to Module 2: Cost of Capital

This module attempts to explain the concept of cost of capital and its relevance to the determination of cost and return to various firm stakeholders. The module aims at providing the learner with the requisite knowledge to make informed investment decisions given the different environments faced by corporate firms. The module also assists the learner to relate the cost of capital used in selecting a project.

The main objective of the module is to enable the learner to calculate the cost of capital and value of corporate firms and relate it to the costs and returns expected from operations and investments. The module specifically aims at enabling the learner to understand basic financial mathematics related to the calculation of time value of money, discount rate, risk and return; understand the different sources of financing in the telecommunication sector; understand the cost of different sources of financing; and understand how the value of the firm is calculated and how it affects gearing.

Module Learning Outcomes
After completing this module the learner will be able to:

  • Calculate the cost of capital for a telecommunications firm or project using various methods and compare these costs to other firms in the telecommunications industry.
  • Determine the risk and return of projects in the telecommunication industry.
  • Explain the different sources of financing the telecommunication sector and their implications to the total value of the firm.
  • Articulate how gearing affects risk and value of the firm.

Module Learning Activities
For this module the learner will be required to do the following activities. Each activity and discussion is introduced at the appropriate point in the text.
(i) Summarize an important reading. Put it on the Website/discussion board and other students should comment on the summaries.
(ii) Discuss and present specific Cost of Capital issues of telecommunication companies and regulatory bodies.
(iii) Interact with other students in the class discussions on current hot topics in ICT Cost of Capital.
(iv) Review and Comment on Cost of Capital Case Studies.

Summary Concepts

  • Cost of Capital
  • Risk and return
  • Time value of money and discounting
  • Capital structure
  • Valuation and value of the firm.
  • Sources of Financing
  • Equity Financing
  • Debt Financing

Core Reading Materials and Reference

A. Books (Main)

  1. Brigham E. & Houston, J (2000) Fundamentals of Financial Management, Concise 3rd edition, Harcourt College publishers, New York.
  2. James C. Van Horne and John M. Wachowicz, Jr. (1995). Fundamentals of Financial Management. 9th Edition Prentice Hall International Edition
  3. Collier C. & Glagola, C (1998) Engineering Economics and Cost Analysis 3rd Edition, Addison, Wesley, Menlo Park, CA.
  4. Richard A. Brealy and Stewart C. Myers (1996) Principals of Corporate Finance International Edition.
  5. David F. Scott, Jr. John D. Martin J. William Petty Arthur J. Keown : Basic Financial Management, Prentice Hall.
  6. Timothy J. Gallagher and Joseph D. Andrew, Jr. Financial Management. Prentice Hall. 3rd Edition. PrenticeHall New York.

Supplementary Readings

  1. Stephen Rose, Randolph, W. Westerfiled and Jeffrey(1996) Jaffe Corporate Finance. 4th Edition Irwin
  2. Stanley B. Block and Geoffrey A. Hirt (1997). Foundations of Financial Management 8th Edition, McGraw-Hill.
  3. Brealey, R. & Myers, S (2000). Principals of Corporate Finance.
  4. Alexander I (1995) Cost of capital, Oxera Press.
  5. Brigham and Gapanski (2000) Intermediate Financial Management
  6. Fred J. Weston, Scott Besley and Eugen F. Brigham (1996) Essentials of Managerial Finance 11th Edition. Dryden Press
  7. Van Horne and Brigham Principles of Financial Management
  8. Van Horne and Brigham Financial Management and Policy
  9. Pandey I. M. (2000) Financial Management Principles
  10. Copeland, T.E. and F.M. Weston (1988): Financial Theory and Corporate Policy. Addison Wesley, 3rd edition .
  11. . Gitman, L.J. (1991): Principles of Managerial Finance, Harper and Row, New York: NY.
  12. Schlosser, M. (1992): Corporate Finance, 2nd ed. Prentice-Hall, Englewood-Cliffs, NJ.

B. Papers and Journals

List of Online Journals of Finance

  1. Accounting and Finance
  2. Applied Mathematical Finance
  3. Business Finance
  4. European Finance Review
  5. European Financial Management
  6. European Investment Review
  7. Finance & Development
  8. Financial Accountability and Management
  9. Financial Analysts Journal
  10. Financial Economics Network (FEN)
  11. Financial Management
  12. Financial Markets, Institutions and Instruments
  13. Financial Practice and Education
  14. Financial Review
  15. International Journal of Theoretical & Applied Finance
  16. International Review of Finance
  17. Journal of Applied Corporate Finance
  18. Journal of Corporate Finance
  19. Journal of Finance
  20. Journal of International Financial Management and Accounting
  21. Journal of International Financial Markets, Institutions & Money
  22. Journal of Money, Credit and Banking
  23. Journal of Multinational Financial Management


Finance Glossary

  1. Campbell R. Harvey's Hypertextual Finance Glossary
  2. http://lms.thomsonelearning.com/hbcp/glossary/glossary.taf?gid=14
  3. Index of Glossary of financial terms
  4. Dictionary of Finance <www.apt-finance.com/finance_dictionary.html >

C. Links from the Web

  1. www.webcrawler.com a search engine which searches between several search engines such as google, yahoo, about, find what, etc, to give you more links to the issues related to financial statements analysis.

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