The _________ is the internal rate of return a firm must earn on its investment in order to maintain the market value of its stock. a. gross profit margin b. IRR c. Cost of Capital d. net profit margin
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
The _________ is the
gross profit margin
IRR
Cost of Capital
net profit margin
A snapshot from Violet Flowers Ltd.'s financial information reveals the following for years 2018 and 2019:
| Item | 2018 | 2019 |
| Long Term Debt | $4,600,000 | $4,900,000 |
| Interest expense | $600,500 | $870,000 |
| Dividends | $400,000 | $590,000 |
| Common Stock | $1,740,000 | $1,815,000 |
| Additional paid-in surplus | $4,200,000 | $4,500,000 |
Violet Flowers' FCF for 2019 was:
$300,000
$515,000
$785,000
$270,000
Trending now
This is a popular solution!
Step by step
Solved in 2 steps
