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5 Written Questions

5 Matching Questions

  1. rs
  2. market value of equity
  3. RPm
  4. cost of external equity
  5. cost of new common stock
  1. a rs + (flotation adjustment)
  2. b the number of shares of stock outstanding multiplied by the current stock price
  3. c Component cost of common equity raised by retained earnings or internal equity.

    Required rate of return on a firm's common stock
  4. d re = D1/[P(1-F)] + g
  5. e rm - rRF

5 Multiple Choice Questions

  1. the firm's weighted average cost of capital
  2. a weighted average of the component costs of debt, preferred stock, and common equity
  3. the interest rate the firm must pay on new debt
  4. ? = D1/P0 + g
  5. WdRd(1-T) + WpRp + WcRs

5 True/False Questions

  1. cost of new common stockthe rate of return investors require on the firm's preferred stock. Rp is calculated as the preferred dividend, Dp, divided by the current price, Pp

          

  2. retained earnings breakpointthe amount of capital raised beyond which new common stock must be issued.

          

  3. retained earnings breakpoint? = rRF + RP

          

  4. reComponent cost of common equity raised by retained earnings or internal equity.

    Required rate of return on a firm's common stock

          

  5. required rate of returnthe number of shares of stock outstanding multiplied by the current stock price

          

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