Chapter 13: The Weighted-Average Cost of Capital Flashcards
1
Q
capital structure
A
a firm’s mix of debt and equity financing
2
Q
weighted-average cost of capital (WACC)
A
expected rate of return on a portfolio of all the firm’s securities, adjusted for tax savings due to interest payments
3
Q
unlevered beta
A
beta of equity of a debt-free firm, reflecting the risk arising from the firm’s operating activities
4
Q
levered equity beta
A
beta of equity of a firm that has debt, reflecting both the risk arising from the firm’s operating activities and the risk created by the leverage (debt holders are entitled to be paid principal and interest before shareholders are paid dividends)
5
Q
free cash flow
A
cash flow that is not required for investment in fixed assets or working capital and is therefore available to investors
