CPA BEC Weighted Average and Business Risk
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Activity based costing (ABC)
A system of allocating both manufacturing and nonmanfacturing costs to objects of interest to management, such as products, services, or customers
The risk that interest rates will have declined when short-term investments must be rolled over.
The uncertainity associated with the ability to forecast EBIT due to such thing as sales variability and operating leverage
Key elements of making capital structure decisions
Sales stability, asset structure, operating leverage, growth rate, profitability, taxes, and management attitude
Optimal Capital Structure
Goal of firms is to minimize its weighted-cost of capital, tax shields for debt makes debt a very attractive component
Cost of Equity
More expensive than the cost of debt since stockholders are subject to more risk than debt holders. Usually estimated by using the dividend growth model.
Cost of Retained Earnings
The opportunity cost that stockholders of a firm could earn elsewhere if they made investments of comparable risk. This figure is imputed.
Cost of Preferred Stock
Determined by dividing the preferred dividend by the net issuance price for preferred stock. Not tax deductible.
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