Midterm 2 review

Midterm 2 review - 1 Cost of equity required rate of return...

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1) Cost of equity –  required rate of return on funds supplied by existing common  stockholders.  Equal to cost of retained earnings, the rate of return that the  company must earn to justify retaining the earnisg instead of paying them as  dividends.   2) Cost of Debt –  The interest Rate on the loan or the interest rate on the bonds  demanded by the investors,  The after Tax Cost of Debt  is the cost to the  company obtaining the debt funds, Just because you paid 10,000 dollars in  interest doesn’t mean you will have an income 10,000 less, because it’s a tax  deductible expense.  3) Cost of preferred Stock –  rate of return investors require on a company’s new  preferred stock, plus the cost of issuing the stock.  ,  Floatation Cost –  The cost  of issuing the new securities  4) WACC - the  mean of all component costs of capital weighted according to the 
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This note was uploaded on 05/11/2008 for the course BUS 330 taught by Professor Nugent during the Spring '08 term at SUNY Stony Brook.

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Midterm 2 review - 1 Cost of equity required rate of return...

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