Chapter 9 Flashcards
An average of the individual costs of financing used by the firm
Weighted Average Cost of Capital
The cost of making a choice defined in terms of the next best alternative that is foregone
Opportunity Cost
The firm’s policies regarding the sources of financing it plans to use and the particular proportions in which they will be used
Financial Policy
The rate that has to be received from an investment in order to achieve the required rate of return for the creditors
Cost of Debt
The costs incurred by the firm when it issues securities to raise funds
Flotation Costs
The rate of return that must be earned on the preferred stockholders’ investment in order to satisfy their required rate of return
Cost of Preferred Equity
The rate of return that must be earned on the common stockholders’ investment in order to satisfy their required rate of return
Cost of Common Equity
The mix of long-term sources of funds used by the firm also known as the firm’s capitalization
Capital Structure
The cost of capital for a specific business unit or division
Divisional WACC
