CPA BEC Weighted Average and Business Risk

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

Sales stability, asset structure, operating leverage, growth rate, profitability, taxes, and management attitude

Goal of firms is to minimize its weighted-cost of capital, tax shields for debt makes debt a very attractive component

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.

The opportunity cost that stockholders of a firm could earn elsewhere if they made investments of comparable risk. This figure is imputed.

Determined by dividing the preferred dividend by the net issuance price for preferred stock. Not tax deductible.