Define the term cost of capital .

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Answer 1

Textbook Question

Chapter 9, Problem 1RQ

Define the term cost of capital.

Expert Solution & Answer

Summary Introduction

To determine: The term cost of capital.

Explanation of Solution

The cost of capital is the rate of return that the company should earn on its investments in order to satisfy the required rates of return of all the company’s foundations of financing (comprising creditors who credit the corporation’s money and owners who acquire shares of stock in the corporation).

This rate is a function of the essential rates of return for all the company’s sources of financing, the company’s tax rate, and the initiation costs suffered in issuing new securities. Thus, the cost of capital regulates the rate of return that should be achieved on the corporation’s investments to make the target return of the company’s investors.

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Consider the following simplified financial statements for the Yoo Corporation (assuming no income taxes): Income Statement Balance Sheet Sales Costs $ 40,000 Assets 34,160 $26,000 Debt Equity $ 7,000 19,000 Net income $ 5,840 Total $26,000 Total $26,000 The company has predicted a sales increase of 20 percent. Assume Yoo pays out half of net income in the form of a cash dividend. Costs and assets vary with sales, but debt and equity do not. Prepare the pro forma statements. (Input all amounts as positive values. Do not round intermediate calculations and round your answers to the nearest whole dollar amount.) Pro forma income statement Sales Costs $ 48000 40992 Assets $ 31200 Pro forma balance sheet Debt 7000 Equity 19000 Net income $ 7008 Total $ 31200 Total 30304 What is the external financing needed? (Do not round intermediate calculations. Negative amount should be indicated by a minus sign.) External financing needed $ 896

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Answer 2

Textbook Question

Chapter 9, Problem 1RQ

Define the term cost of capital.

Expert Solution & Answer

Summary Introduction

To determine: The term cost of capital.

Explanation of Solution

The cost of capital is the rate of return that the company should earn on its investments in order to satisfy the required rates of return of all the company’s foundations of financing (comprising creditors who credit the corporation’s money and owners who acquire shares of stock in the corporation).

This rate is a function of the essential rates of return for all the company’s sources of financing, the company’s tax rate, and the initiation costs suffered in issuing new securities. Thus, the cost of capital regulates the rate of return that should be achieved on the corporation’s investments to make the target return of the company’s investors.

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Answer 3

Textbook Question

Chapter 9, Problem 1RQ

Define the term cost of capital.

Expert Solution & Answer

Summary Introduction

To determine: The term cost of capital.

Explanation of Solution

The cost of capital is the rate of return that the company should earn on its investments in order to satisfy the required rates of return of all the company’s foundations of financing (comprising creditors who credit the corporation’s money and owners who acquire shares of stock in the corporation).

This rate is a function of the essential rates of return for all the company’s sources of financing, the company’s tax rate, and the initiation costs suffered in issuing new securities. Thus, the cost of capital regulates the rate of return that should be achieved on the corporation’s investments to make the target return of the company’s investors.

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Answer 4

Textbook Question

Chapter 9, Problem 1RQ

Define the term cost of capital.

Expert Solution & Answer

Summary Introduction

To determine: The term cost of capital.

Explanation of Solution

The cost of capital is the rate of return that the company should earn on its investments in order to satisfy the required rates of return of all the company’s foundations of financing (comprising creditors who credit the corporation’s money and owners who acquire shares of stock in the corporation).

This rate is a function of the essential rates of return for all the company’s sources of financing, the company’s tax rate, and the initiation costs suffered in issuing new securities. Thus, the cost of capital regulates the rate of return that should be achieved on the corporation’s investments to make the target return of the company’s investors.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

Summary Introduction

To determine: The term cost of capital.

Explanation of Solution

The cost of capital is the rate of return that the company should earn on its investments in order to satisfy the required rates of return of all the company’s foundations of financing (comprising creditors who credit the corporation’s money and owners who acquire shares of stock in the corporation).

This rate is a function of the essential rates of return for all the company’s sources of financing, the company’s tax rate, and the initiation costs suffered in issuing new securities. Thus, the cost of capital regulates the rate of return that should be achieved on the corporation’s investments to make the target return of the company’s investors.

Answer 8

Expert Solution & Answer

Summary Introduction

To determine: The term cost of capital.

Explanation of Solution

The cost of capital is the rate of return that the company should earn on its investments in order to satisfy the required rates of return of all the company’s foundations of financing (comprising creditors who credit the corporation’s money and owners who acquire shares of stock in the corporation).

This rate is a function of the essential rates of return for all the company’s sources of financing, the company’s tax rate, and the initiation costs suffered in issuing new securities. Thus, the cost of capital regulates the rate of return that should be achieved on the corporation’s investments to make the target return of the company’s investors.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

Summary Introduction

To determine: The term cost of capital.

Answer 12

Explanation of Solution

The cost of capital is the rate of return that the company should earn on its investments in order to satisfy the required rates of return of all the company’s foundations of financing (comprising creditors who credit the corporation’s money and owners who acquire shares of stock in the corporation).

This rate is a function of the essential rates of return for all the company’s sources of financing, the company’s tax rate, and the initiation costs suffered in issuing new securities. Thus, the cost of capital regulates the rate of return that should be achieved on the corporation’s investments to make the target return of the company’s investors.

Answer 13

Ch. 9 - Define the term cost of capital.Ch. 9 - Prob. 2RQ Ch. 9 - Why do firms calculate their weighted average cost...Ch. 9 - Prob. 4RQ Ch. 9 - Prob. 5RQ Ch. 9 - Prob. 6RQ Ch. 9 - Prob. 7RQ Ch. 9 - Prob. 1SP Ch. 9 - Prob. 2SP Ch. 9 - (Cost of equity) In the spring of 2018, the Brille...

Define the term cost of capital .

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