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Which of the following is not a capital component when calculating

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Which of the following is not a capital component when calculating the weighted average cost of capital (WACC)?
Long-term debt.
Common stock.
Retained earnings.
Accounts payable.
Preferred stock.


Klieman Company's perpetual preferred stock sells for $90 per share and pays a $7.50 annual dividend per share. If the company were to sell a new preferred issue, it would incur a flotation cost of 5.00% of the price paid by investors. What is the company's cost of preferred stock?
7.50% 7.79% 8.21% 8.57% 8.77%


Which of the following statements is CORRECT?
The WACC can change depending on the amount of funds a firm raises during a given year. Moreover, the WACC at each level of funds raised is a weighted average of the marginal costs of each capital component, with the weights based on the firm's target capital structure.
The WACC is calculated using a before-tax cost for debt equal to the interest rate that must be paid on new debt, along with the after-tax cost for common stock and for preferred stock if it is used.
An increase in the risk-free rate is likely to reduce the marginal costs of both debt and equity.
The bond-yield-plus-risk-premium approach to estimating the cost of common equity involves adding a risk premium to the interest rate on the company's own long-term bonds. The size of the risk premium for bonds with different ratings is published daily in the Wall Street Journal.
Beta measures market risk, which is generally the most relevant risk measure for a publicly-owned firm that seeks to maximize its intrinsic value. However, this is not true unless all of the firm's stockholders are well diversified.
Submitted: 4 years ago.
Category: Homework
Expert:  SteveS replied 4 years ago.
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