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