FINA 311 (Chapter 12)

To estimate a firms equity cost of capital using the CAPM, we need to know:

-Stocks beta -Market Risk Premium -Risk-Free Rate

A Firm's Cost of Debt:

-Yields can be can be calculated from observable data -It is easier to estimate than the cost of equity

Components used in the construction of the WACC?

-cost of debt -cost of common stock -cost of preferred stock

The rate used to discount project cash flows is known as the:

-discount rate -required return -cost of capital

The growth rate of dividends can be found using :

-security analysts forecast -Historical dividends growth rates

Which are Tax Deductible to the Firm?:

Coupon interest paid on bonds

Components of the WACC include funds that come from:

Investors

To apply the dividend discount model to a particular stock, you need to estimate the:

Dividend yield and the Growth Rate

The return an investor in a security receives is _____ ____ the cost of the security to the company that issued it.

equal to

If the firm is all-equity, the discount rate is equal to the firm's cost of ___ capital.

equity

Finding a firm's overall cost of equity is difficult because:

it cannot be observed directly

The most appropriate weights to use in the WACC are the ___ weights.

Market Value

According to CAPM, what is the expected return on a stock if its beta is equal to zero?

The risk-free rate

The cost of capital depends primarily on the ___ of funds, not the ____.

Use, Source

What does WACC stand for?

Weighted Average Cost of Capital