CF chapter 14

Question 1

Capital structure

Answer 1

The relative proportions of equity and debt and other securities that the firm has outstanding

Question 2

Cost of Capital

Answer 2

The return required by investors who provide capital for the firm

Question 3

Leverage ratio (formula)

Answer 3

D/(D+E)

Question 4

Debt to equity ratio (formula)

Answer 4

D/E

Question 5

Expected return formula

Answer 5

(Cash flow + resale price / Purchase price) -1

Question 6

Equity of a firm formula

Answer 6

E = Possible outcomes / 1+rE

Question 7

Cost of equity formula

Answer 7

Ru + D/E (Ru - Rd)

Question 8

rU = rA = Formula (pretax waac)

Answer 8

rE * E/D *E + rD * D/D+E