Principles of Finance
What sources of capital should be included when you estimate Jana’s weighted average cost of capital?
Should the component costs be figured on a before-tax or an after-tax basis?
Should the costs be historical (embedded) costs or new (marginal) costs?
What is the market interest rate on Jana’s debt, and what is the component cost of this debt for WACC purposes?
What is the firm’s cost of preferred stock?
Jana’s preferred stock is riskier to investors than its debt, yet the preferred stock’s yield to investors is lower than the yield to maturity on the debt. Does this suggest that you have made a mistake? (Hint: Think about taxes.)
What are the two primary ways companies raise common equity?
Why is there a cost associated with reinvested earnings?
Jana doesn’t plan to issue new shares of common stock. Using the CAPM approach, what is Jana’s estimated cost of equity?
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