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L1 37 Cost of Capital > e explain the marginal cost of capital’s role in determining the net present value of a project; > Flashcards

e explain the marginal cost of capital’s role in determining the net present value of a project; Flashcards

L1 37 Cost of Capital (12 decks)

a calculate and interpret the weighted average cost of capital (WACC) of a company;

b describe how taxes affect the cost of capital from different capital sources;

c explain alternative methods of calculating the weights used in the WACC, including the use of the company’s target capital structure;

d explain how the marginal cost of capital and the investment opportunity schedule are used to determine the optimal capital budget;

e explain the marginal cost of capital’s role in determining the net present value of a project;

f calculate and interpret the cost of debt c

g calculate and interpret the cost of noncallable, nonconvertible preferred stock;

h calculate and interpret the cost of equity capital using the capital asset pricing model approach, the dividend discount model approach, and the bond-yield- plus risk-premium approach;

i calculate and interpret the beta and cost of capital for a project;

j describe uses of country risk premiums in estimating the cost of equity;

k describe the marginal cost of capital schedule, explain why it may be upward-sloping with respect to additional capital, and calculate and interpret its break-points;

l explain and demonstrate the correct treatment of flotation costs.

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