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9 Cards in this Set
- Front
- Back
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Cost of Capital |
The cost of alternative sources of financing to the firm. |
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Floatation Cost |
The distribution cost of selling securities to the public. The cost includes the underwriter's spread and any associated fees.
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Dividend Valuation Model |
A model for determining the value of a share of stock by taking the present value of an expected stream of future dividends.
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Capital Asset Pricing Model (CAPM) |
A model that relates the risk-return trade-offs of individual assets to market returns. A security is presumed to receive a risk-free rate of return plus a premium for risk.
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Common Stock Equity |
The ownership interest in the firm. It may be represented by new shares or retained earnings. The same as net worth.
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Optimum Capital Structure |
A capital structure that has the best possible mix of debt, preferred stock, and common equity. The best mix should provide the lowest possible cost of capital to the firm.
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Weighted Average Cost of Capital |
Determined by multiplying the cost of each item in the optimal capital structure by its weighted representation in the overall capital structure and summing up the results.
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Financial Capital |
Common stock, preferred stock, bonds, and retained earnings. This appears on the corporate balance sheet under long-term liabilities and equity.
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Marginal Cost of Capital |
The cost of the last dollar of funds raised. It is assumed that each dollar is financed in proportion to the firm's optimum capital structure. |
