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Match term with the description: Weighted average cost of capital O The amount of capital...

Question:

Match term with the description:

Weighted average cost of capital

  1. O The amount of capital expenditures made, or to be made, at which the Firm's marginal cost of capital increases.
  2. O The return required by providers of capital loaned to the firm.
  3. O The average cost of a firm's financial capital when averaged across all of its outstanding debt and equity capital.
  4. O This concept argues that a firm's retained earnings are not free to the firm.
  5. O A firm's shareholder wealth-maximizing combination of debt, and common and preferred stock.
  6. O These costs are generally expressed as a percentage of the total amount of securities sold, including the costs of printing the security certificates, applicable taxes, and issuance and marketing fees.
  7. O A table or graph of a firm's potential investments listed in decreasing order of their internal rates of return.
  8. O The weighted average cost of the last dollar raised by a firm, or the firm's incremental cost of capital.
  9. O This term refers to the individual sources of the firm's financing, including its debt, preferred stock, retained earnings, and newly issued common equity.
  10. O The minimum return that must be earned on a firm's investments to ensure that the firm's value does not decrease.

Capital Structure:

Capital structure refers to the methods used by the firm to raise its capital. Based on the cost associated and the amount needed the firm may opt to raise money either through internal sources or from external sources.

Answer and Explanation:

The correct answer is (3) The average cost of a firm's financial capital when averaged across all of its outstanding debt and equity capital.

The weighted average cost of capital is the average cost incurred by the firm from raising capital from various sources. For example, the cost of raising capital from debt sources of finances is the interest that is payable. While the cost of raising capital from equity sources is the dividend payable to the stockholders and the flotation cost incurred when issuing stock.


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Capital Structure & the Cost of Capital

from Finance 101: Principles of Finance

Chapter 15 / Lesson 1
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