1
Q
Two other names for cost of capital
A
required return
appropriate discount rate
2
Q
What does the cost of capital depend on, and not depend on?
A
Depends primarily on the use of funds, not the source of funds.
3
Q
cost of equity
A
The return that equity investors require on their investment in the firm
4
Q
cost of debt
A
The return that lenders require on the firm’s debt
5
Q
cost of preferred stock equation
A
D/P0
6
Q
WACC
A
Weighted average cost of capital. The WACC is the overall return the firm must earn on its existing assets to maintain the value of its stock.
7
Q
pure play approach
A
Use of a weighted average cost of capital that is unique to a particular project, based on companies in similar lines of business.
ACCT 431
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