202086&ensp·&enspMake sure you support your answers and clearly explain the advantages and disadvantages of utilizing the weighted average cost of capital methodology. Include at least one graph or chart in your presentation. Company Information The capital structure for the firm will be maintained and is now 10% preferred stock, 30% debt, and 60% new common stock.
Flotation Costs and Cost of Capital. The cash flow adjustment method was initially suggested by John R. Ezzell and R. Burr Porter in the article Flotation Costs and Weighted Average Cost of Capital. The main idea behind the method is that the costs are only onetime expenses paid to third parties.
Including Flotation Cost in Calculating Cost of Capital. This approach was suggested by john R. Ezzell and R. Burr Porter in their paper Flotation Costs and the Weighted Average Cost of Capital In this paper they argue that the correct way of treating flotation costs is to deduct it as a part of the valuation.
Downloadable! The weighted average cost of capital (Ko) is presented in virtually all textbooks in financial management and capital budgeting as a practical concept fundamental to the actual selection of optimal financial and investment alternatives. As often employed Ko can be defined aswhereKo = the weighted average cost of capital,Ks = the cost of equity capital,Kb = the cost of debt
2020629&ensp·&enspIf the business uses both debt and equity financing it gets more complicated. When more than one source of capital is used to finance a business firm's operations, then the calculation is an average of the costs of each and is called the weighted average cost of capital (WACC).
3. The overall weighted average cost of capital is used instead of costs for specific sources of funds because A. use of the cost for specific sources of capital would make investment decisions inconsistent. B. a project with the highest return would always be accepted under the specific cost criteria.
14.6 Flotation Costs and the Weighted Average Cost of Capital Ch 14 NPPT Section 14.6 So far, we have not included issue, or flotation, costs in our discussion of the weighted average cost of capital. If a company accepts a new project, it may be required to issue, or float, new bonds and stocks. This means that the firm will incur some costs, which we call flotation costs.