CPA BEC Weighted Average and Business Risk

  1. 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
  2. Reinvestment Risk
    The risk that interest rates will have declined when short-term investments must be rolled over.
  3. Business Risk
    The uncertainity associated with the ability to forecast EBIT due to such thing as sales variability and operating leverage
  4. Key elements of making capital structure decisions
    Sales stability, asset structure, operating leverage, growth rate, profitability, taxes, and management attitude
  5. Optimal Capital Structure
    Goal of firms is to minimize its weighted-cost of capital, tax shields for debt makes debt a very attractive component
  6. 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.
  7. 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.
  8. Cost of Preferred Stock
    Determined by dividing the preferred dividend by the net issuance price for preferred stock. Not tax deductible.
Card Set
CPA BEC Weighted Average and Business Risk
CPA BEC Weighted Average and Business Risk