WAC & Optimal Capital Structure Flashcards
1
Q
CAPM ROR
A
R + B ( M - R )
R = risk free rate (bond rate) B = beta m = market rate of return
2
Q
Net Cost of Debt
A
effective interest rate net of tax
coupon rate only used if same as effective rate & there are no flotation costs
3
Q
Discounted Cash Flow Method
A
K = D/P + G
4
Q
cost of common equity
A
expected dividend/ current share price + growth rate
5
Q
cost of preferred stock
A
amount of dividend paid/net proceeds
net proceeds = market price - flotation costs
