Introduction to Finance

 8. 
(LO 18.3)
How can a fi rm estimate its cost of debt fi nancing?
 9. 
(LO 18.3)
Describe how the cost of preferred stock is determined.
 10. 
(LO 18.3)
Describe two methods for estimating the cost of 
retained earnings.
 11. 
(LO 18.3)
How does the cost of new common stock diff er from 
the cost of retained earnings?
 12. 
(LO 18.4)
What is the weighted average cost of capital (WACC)? 
Describe how it is calculated.
 13. 
(LO 18.4)
Should book value weights or market value weights be 
used to evaluate a fi rm’s current capital structure weights? Why?
 14. 
(LO 18.5)
The management of Albar Incorporated has decided 
to increase the fi rm’s use of debt from 30 percent to 45 percent of 
assets. How will this aff ect its internal growth rate in the future? Its 
sustainable growth rate?
 15. 
(LO 18.5)
A booming economy creates an unexpectedly high 
sales growth rate for a fi rm with a low internal growth rate. How can 
the fi rm respond to this unplanned sales increase?
 16. 
(LO 18.5)
How does management’s strategy toward corporate 
growth and dividends aff ect its capital structure policy?
 17. 
(LO 18.6)
What is EBIT/eps analysis? What information does it 
provide managers?
 18. 
(LO 18.6)
Describe the term “indiff erence level” in conjunction 
with EBIT/eps analysis.
 19. 
(LO 18.7)
Describe how a fi rm’s business risk can be measured, 
and indicate how operating leverage impacts business risk.
 20. 
(LO 18.7)
How is fi nancial leverage created? Describe how the 
degree of fi nancial leverage is calculated.