The firm should calculate its cost of capital as a(n) ___________ ________ of the after-tax costs of the various types of funds it uses.
There are ___________ methods that can be used to determine the cost of common equity.
Assigning a cost to reinvested earnings is based on the _____________ ___________ principle.
Companies must earn more than rs on new shares because they incur _____________ _______ to issue new stock.
Using the Capital Asset Pricing Model (CAPM), the required rate of return on common stock is found as a function of the _______-________-_______, the firm's _______ ______________, and the required rate of return on an average __________.
Of the three risk measures, ___________ risk is theoretically the most relevant measure because of its direct effect on stock prices.
If the expected rate of return on a given capital project lies __________ the SML, the expected rate of return on the project is more than enough to compensate for its risk, and the project should be accepted.
_________-_________ risk is the risk an asset would have if it were the firm's only asset.
Two approaches have been developed for estimating project betas: the ________ ________ and the ______________ __________ methods.
pure play; accounting beta
Projects are classified into subjective risk categories and then ________-____________ _________ _____ _____________ are developed for each category using the composite WACC as a starting point.
risk-adjusted costs of capital
_________ _____________ analysis is a similar process to the corporate valuation model, except that it focuses on proposed new projects rather than on the firm's existing assets.
Most firms employ several types of capital, called __________ _______________, with common and preferred stock, along with debt, being the three most frequently used types.
rd is the ____________ cost of new debt to be raised during the planning period.
The combined effects of ____________ _______ and _________ ____________ inhibit companies from issuing additional common stock.
flotation costs; price pressure
The correct weights to use in the WACC calculation are those based on the firm's ___________ capital structure, since this is the best estimate of how the firm will, on average, raise money in the future.
For many firms, ____________ is the largest source of funds as shown in their statement of cash flows and is available to support the capital budget.
The opportunity cost of depreciation is the ____________ __________ _______ _____ __________.