Chapter 13: Cost of Capital

Question 1

weighted average cost of capital (concept)

Answer 1

• the weighted average of the cost of debt (debt usually issued in the form of bonds) and equity (common and preferred stock)

the weighted average of the costs of the different types of capital (debt and equity) that have been used to finance a firm; the cost of each type of capital is weighted by the proportion of the total capital that it represents

Question 2

tax deduction concept for bonds

Question 3

cost of equity: CAPM and dividend discount model concepts and calculations?

Question 4

preferred stock concept

Answer 4

• is a form of equity that has a stated value and specified dividend rate.

Question 5

bonds

Answer 5

pay coupon (coupon payments)

Question 6

stocks

Answer 6

pay dividends