Finance Flashcards

Finance chapter 9

The cost of common stock equity may be estimated by using the ________. c. Gordon model
When discussing weighing schemes for calculating the weighted average cost of capital, ________. d. market value weights are preferred over book value weights and target weights are preferred over historical weights
The cost of capital reflects the cost of funds ________. b. over a long-run time period
The ________ is the rate of return required by the market suppliers of capital in order to attract their funds to the firm. a. cost of capital
The four basic sources of long-term funds in the pecking order for a firm are ________. c. retained earnings, long-term debt, preferred stock, and common stock
The ________ is the firm’s desired optimal mix of debt and equity financing. c. target capital structure
The cost of new common stock financing is higher than the cost of retained earnings due to ________. b. flotation costs and underpricing
Which of the following is true of long-term funds? a. They are the sources that supply the financing necessary to support a firm’s capital budgeting activities
The cost of retained earnings is ________. d. equal to the cost of common stock equity
Debt is generally the least expensive source of capital. This is primarily due to ________. b. the tax deductibility of interest payments

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