1. Introductory concepts Aa Aa Term Answer Description The average rate paid by

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1. Introductory concepts Aa Aa Term Answer Description The average rate paid by a firm to secure the outstanding finandial capital used to acquire the firm's assets Capital components A. Investment opportunityB. This concept maintains that the firm's retained earnings should schedule generate a return for the firm's shareholders. Afirm's shareholder wealth-maximizing combination of debt and common and preferred stock. Opportunity cost principle C. Breakpoint This term refers to the individual sources of the firm's financing, incuding its debt, preferred stock, retained earnings, and newly ssued common equity D. Target capital structure The minimum return that must be earned on a irm's investments to ensure that the fim's value does not decrease. E. Flotation costs The return required by providers of capital loaned to the firm A table or graph of a firm's potential investments ranked from the highest internal rate of return to the lowest F. Marginal cost of capitalG. Cost of capital 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 H. weighted average cost of [ The weighted average cost of the last dotar raised by a firm, or the firm's incremental cost of capital. 1. aavege The amount of capital expenditures made, or to be made, at which the firm's marginal cost of capital increases Cost of debt ]. A firm's cost of retained earnings, or internal equity, can be estimated using a variety of methods. Match the formula and/or the term to its corresponding description. Estimation method Formula

Explanation / Answer

Capital components = D.

These are the sources of financing in terms of debt, preferred stock, retained earnings, and common equity.

Investment opportunity schedule = G.

This is the ranking schedule of highest internal rate of return to the lowest. The higher returns of projects should be preferred.

Opportunity cost principle = J.

This is the amount of capital expenditure at which the firm’s cost of capital increases.

Breakpoint = E.

This is the minimum return that must be earned on investment to ensure that the firm’s value doesn’t decrease.

Target capital structure = B.

It generates a return on retained earnings for the firm’s shareholders.

Flotation cost = H.

This is the new-issue related cost such as printing certificates, applicable taxes, marketing fees, etc.

Marginal cost of capital = I.

This is the weighted average cost of the last dollar raised by a firm.

Cost of capital = C.

This is the wealth-maximizing combination of debt, common stock, and preferred stock.

Weighted average cost of capital = A.

This is the average rate paid by a firm to secure outstanding capital.

Cost of debt = F.

This is the return required on capital that is loaned to the firm.

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