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Chapter 11 wacc
| Question | Answer |
|---|---|
| Cost of Capital | Firm's average cost of funds, Determining the amount of funds needed to be earned from investments |
| Required Rate of Return | the return needed to be earned in order to cover the cost of financing |
| Capital Components | Types of capital used by firm; debt, peferred stock, and common equity |
| After tax cost of debt rdT | relevent cost of new debt |
| Cost of perferred stock rps | rate of return required on perferred stock |
| Cost of retained Earnings | THE rate of return required by stockholders on a firm's exsiting common stock |
| Cost of new equity re | T he cost of external equity, based on cost the cost of retained earings but increased for floatation cost |
| Flotation cost | the expenses incurred when selling new issues of securities |
| Target Capital Structure (optimal) | the combination %s of debt, perferred stock, and common equity that maximizes the firm's stock |
| WACC | weighted average of component cost s of debt, perferred stock, and common equity |
| Marginal Cost of Capital MCC | the cost of obtaining another dollar of new capital |
| MCC | the weighted average cost of the last dollar of new capital raised |
| MCC Schedule | A graph that relates WACC to total amount of new capital |
| Breakpoint | The Dollar value of new capital that can be raised before a increase in WACC occurs |
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