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5 Written questions

5 Matching questions

  1. wacc
  2. re
  3. RPm
  4. flotation cost adjustment
  5. capital component
  1. a rm - rRF
  2. b component cost of external equity. Equal to rs plus a factor that reflects the cost of issuing new stock
  3. c one of the types of capital used by firms to raise funds. They are investor-supplied items including debt, preferred stock, and common equity
  4. d WdRd(1-T) + WpRp + WcRs
  5. e the amount that must be added to rs to account for flotation costs to find re

5 Multiple choice questions

  1. a weighted average of the component costs of debt, preferred stock, and common equity
  2. the mix of debt, preferred stock and common equity the firm plans to raise to fund its future projects
  3. rs = rRF + (RPm)b
  4. after-tax component cost of debt
  5. rs + (flotation adjustment)

5 True/False questions

  1. cost of new common stockre = D1/[P(1-F)] + g


  2. cost of retained earnings? = D1/P0 + g


  3. flotation cost(adjusted DCF cost) - (pure DCF cost)


  4. cost of preferred 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


  5. component costthe cost of each component