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Determining the Cost of Capit BEGINNING+OF-CHAPTER QUESTIONS sd the chal, consider how you would ale and make vale weigh and the rol of apts: Rae, you shuld we hemo get ae yu should beable a give at asp _mting he cso ety al the CAPM, 0 DCE, equations, and you shod be sland (the bond ye plu premaan, Whe iloiteyouranower Weise Neanowers robod bet thn the alco does te ‘nceing the odel and working ough t 5. How do Maton costa aet Ie onto capital 25 the fm raises lager and ager arounis of Capital and how do lettin cost aft the ay 3 company ass capital Fam ea oye? 6. Fora ghen fir, why does WACC change ove tanger in the WACC. and thus determine ‘any one tne, shuld the same WACC be usd tow cch ta company api Deng som Hpac aerate ta a Sing cial a corny oe inwhy thse dit. oir eta eat mis (laa anaes In Chapter 1, we tld you that manages should capital ACC. Inthe previous chapters, we jet make thelr more vlusle and that _ examined the majr sources of fnancing tock thevalc off determined by thes, tin- bonds an prefered oct) on an Indiv ng an sk of fs free cash lows FCP) In par- basis, In this chapter we put thse pieces icon afi’ ale the present valve of ts together and estimate the WACC CFs, kcunted athe weighted average cet fer, + WACO 10.1 THE WEIGHTED AVERAGE COST OF CAPITAL SelkTeer Questions 10.2 COST OF DEBT, rg(1 — T) wnat 9 te terms “cost of capital” and “weighted aveege coup pial” mean? osible to finances company ent tomo equ panies euply several ype of capita ‘ania components, with common and prefered werk al three mos frequen wed types, Some companies, epcialy thos tn fogs fnnde lege amounts of shortscrm debe inthe capital uctres- A components have one feature in cotnnon: The inves wh provid woul be the rege rate of eur om sty. Homes xt types of expt and, doe wo diferent thse ferent css ferent required atesof return. The egucd ite of return on cnc capt compo ‘scale is component cox, andthe eo expt sed to anaes capital body

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