3 sentences for each question
- What are the differences between systematic and nonsystematic risk?
- What is the formula for expected rate of return of stock? How does risk come into the equation? What is meant by the states of economy? How would calculate the states?
- What is the definition of weighted average cost of capital?
- How do increases in debt affect the weighted average cost of capital?
- Corporations can raise additional capital by the sale of debt or the sale of their common stock. The determination of the cost of capital from debt is straight-forward. If R is the interest rate on debt and t is the tax rate on corporate profits then the cost of capital from debt is R(1-t). The adjustment for the tax rate on profit comes because the interest payments on debt are tax-deductible.The definition and determination of the cost of capital from equity is more complicated. How does the book calculate the cost of capital? Anyone?
6. How does dividend policy affect the growth of a firm?
7. What are some of the dividend policies of companies that you know? How does this impact the cost of the stock?