Before beginning the discussion of the cost of capital, it is helpful to summarize the important elements of notation used throughout this chapter.
rf = riskless (risk-free) rate of return; the return offered on short-term U.S. Treasury securities
kd = pretax cost of debt
ki = after-tax cost of debt
kp = cost of preferred stock
ke = cost of internal common equity
k_e = cost of external common equity
ka = weighted (marginal) cost of capital
P0 = the current market price of a security
Pnet = the net proceeds to the firm from the sale of a security
Pf = market value of a firm’s preferred stock
E = market value of a firm’s common equity
B = market value of a firm’s debt in its capital structure
rm = expected return on the “market” portfolio
b = the beta (systematic risk) of a company’s stock
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Financial Management Related Interview Questions |
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Financial Planning Interview Questions | Financial Accounting Interview Questions |
Cost Accounting Interview Questions | Management Accounting Interview Questions |
Financial Statement Interview Questions | Corporate Finance Interview Questions |
Financial Analyst Interview Questions | Financial Services Interview Questions |
Financial Management Related Practice Tests |
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Financial Planning Practice Tests | Financial Accounting Practice Tests |
Cost Accounting Practice Tests | Management Accounting Practice Tests |
Financial Statement Practice Tests |
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