Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that a firm cannot control? Check all that apply. The firm's dividend payout ratio The firm's capital structure The general level of stock prices Interest rates in the economy The impact of cost of capital on managerial decisions Wellington Industries has two divisions, L and H. Division L is the company's low-risk division and would have a weighted average cost of capital of 9% if it was operated as an independent company, Division H is the company's high-risk division and would have a weighted average cost of capital of 15% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 12%. Division H is considering a project with an expected return of 13%. Wellington Industries should division. the Division H's project because its return is the risk-based cost of capital for the
Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that a firm cannot control? Check all that apply. The firm's dividend payout ratio The firm's capital structure The general level of stock prices Interest rates in the economy The impact of cost of capital on managerial decisions Wellington Industries has two divisions, L and H. Division L is the company's low-risk division and would have a weighted average cost of capital of 9% if it was operated as an independent company, Division H is the company's high-risk division and would have a weighted average cost of capital of 15% if it was operated as an independent company. Because the two divisions are the same size, the company has a composite weighted average cost of capital of 12%. Division H is considering a project with an expected return of 13%. Wellington Industries should division. the Division H's project because its return is the risk-based cost of capital for the
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
Question
Transcribed Image Text:5. Factors that affect the cost of capital equation
Each of the following factors affects the weighted average cost of capital (WACC) equation. Which are factors that a firm cannot control? Check all
that apply.
The firm's dividend payout ratio
The firm's capital structure
The general level of stock prices
Interest rates in the economy
The impact of cost of capital on managerial decisions
Wellington Industries has two divisions, L and H. Division L is the company's low-risk division and would have a weighted average cost
of capital of 9% if it was operated as an independent company. Division H is the company's high-risk division and would have a
weighted average cost of capital of 15% if it was operated as an independent company. Because the two divisions are the same size,
the company has a composite weighted average cost of capital of 12%. Division H is considering a project with an expected return of
13%.
Wellington Industries should
division.
the Division H's project because its return is
the risk-based cost of capital for the
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