Week 5 Capital Components 3 - way they choose to use their...

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According to our text there are a number of factors that affect the WACC. Of these factors there are some that firms can control and some they cannot. The following are factors a firm cannot control: 1. The level of interest rates – Interest rates affect the cost of debt, cost of common stock, and cost of preferred stock. 2. Market risk premium – market risk premium affects the cost of equity and the cost of debt. 3. Tax rates – used to calculate the cost of debt and it affects the cost of capital. The following are factors a firm can control: 1. Capital Structure Policy – this policy explains that a company can alter the WACC by the
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Unformatted text preview: way they choose to use their debt. For example, if a firm uses more debt and less common equity this may result in a lower WACC. 2. Dividend policy – A firm can change a stock’s rate of return by the percentage of dividends they choose to pay out. 3. Investment Policy – If a firm dramatically changes their investment policy it can no longer be assumed that new capital will be invested in assets to the same level that they invested their current assets....
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This note was uploaded on 03/26/2012 for the course F1515 F1515 taught by Professor Stan during the Spring '10 term at Keller Graduate School of Management.

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