The team returned from the luncheon break promptly at 1:30 pm. After all were seated, Jason began "We mentioned at least a couple of times this morning that we would discuss the cost of capital ( CCAP) this afternoon. Others call it the weighted average cost of capital ( WACC) and there may be other terms that you may have heard or seen in the literature".

"As is the case with much of the content of value-based finance, the cost of capital is predicated on basic fundamentals from the financial markets. One of these fundamentals is that investors expect a return on their investment commensurate with the risk they are taking. Another is that owners of equities have enjoyed higher relative returns versus other types of securities over long periods of time. For many years, I have used a simple diagram (Exhibit 10) to illustrate these concepts, and I would like to share this with you now".

Exhibit 10

"As this chart indicates, cost of capital ( CCAP) relates to the participants in the financial markets. It expresses the annual return requirements of the investors who set prices for securities in sophisticated markets such as the United States and other large, well-developed countries. Now, there has been a lot of controversy on this subject since value-based metrics started to be adopted by corporations in this country and others. While I certainly don't want to minimize these conceptual issues, which are relevant in terms of the...