FI515Week5 - DeVry FI515 200709 Week Five Chapter 10...

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DeVry FI515 - 200709 Week Five Chapter 10: Question 10-1 Chapter 10: Problems 10-1, 10-7, 10-8 and 10-9 Chapter 11: Problems 11-9, 11-10 and 11-11 Question; Answer: Weighted Average cost of capital – the weighted average of the after tax component costs of capital – debt, preferred stock, and common equity. Each weighting factor is the proportion of that type of capital in the optimal target, capital structure. After tax cost of debt –used to calculate the weighted average cost of capital and it is the interest rate on debt, less tax savings that result because interest is deductable. Cost of preferred stock – the return required by the firm’s preferred stockholders. The cost of preferred stock, is the cost to the firm of issuing new preferred stock. Cost of common equity or cost of common stock – the return required by the firm’s common stockholders. It is usually calculated using the Capital Asset Pricing Model or the dividend growth model. Target capital structure – the relative amount of debt, preferred stock, and common
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FI515Week5 - DeVry FI515 200709 Week Five Chapter 10...

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