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