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Chapter 11 wacc

QuestionAnswer
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
Created by: 5000587