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5 Written questions

5 Matching questions

  1. RPm
  2. rp
  3. cost of new common stock
  4. rd(1-T)
  5. target capital structure
  1. a The cost of external equity; based on the cost of retained earnings, but increased for flotation costs. Re
  2. b after-tax component cost of debt
  3. c rm - rRF
  4. d the mix of debt, preferred stock and common equity the firm plans to raise to fund its future projects
  5. e component cost of preferred stock, found as the yield investors expect to earn on the preferred stock

5 Multiple choice questions

  1. the rate of return required by stockholders on a firm's common stock. Rs
  2. Component cost of common equity raised by retained earnings or internal equity.

    Required rate of return on a firm's common stock
  3. 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. rs + (flotation adjustment)
  5. re = D1/[P(1-F)] + g

5 True/False questions

  1. market value of equitythe number of shares of stock outstanding multiplied by the current stock price


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


  3. component costthe cost of each component


  4. flotation cost adjustment(adjusted DCF cost) - (pure DCF cost)


  5. flotation costthe percentage cost of issuing new common stock. F