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15 Cards in this Set
- Front
- Back
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If earnings are retained instead, there is a _______. |
Opportunity cost |
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What is the return that stockholders could earn on alternative investments of equal risk? |
Opportunity Cost |
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Investors could buy other securities with _____ and earn a return that way. |
Dividends |
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Earnings can be reinvested or paid out as _____ |
Dividends |
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When a company issues new common stock they also have to pay ________ to the underwriter. |
Flotation costs |
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As an aside, issuing new common stock may send a ______ to the capital markets. |
Negative signal |
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What may depress the stock price? |
issuing new common stock that may send a negative signal to the capital markets |
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Why does issuing new common stock send a negative signal to the capital market? |
Markets suspect that if someone is offering them something, maybe that "something" is overvalued. |
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A company's assets are financed by either ___ or ___. |
debt ot equity |
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What is the average of the costs of these sources of financing, each of what is weighted by how much of the overall financing it represents? |
WACC |
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By taking a weighted average, we see ____? |
how much the company has to pay for every dollar it finances |
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The demands by bondholders are more ____. |
Explicit |
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The WACC is the correct value by which to _____. |
discount future cash flows |
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If the firm makes the WACC, it can _______. |
afford to pay all of its investors what they have been promised |
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The combined information of WACC sets the target for what firms must _____. |
return to fulfill their obligations |
