BUS 330 Lecture Notes - Lecture 10: Dividend Yield, Preferred Stock, Retained Earnings

• School: Stony Brook University
• Department: Business Management
• Course: BUS 330
• Professor: Michael Nugent

Document Summary

Bus 330 finance | chapter 9 the cost of capital. Cost of capital reps the firm"s cost of financing; min rate of return that project must earn to incr firm val. Financial managers ethically bound to only invest in projects that they expect to exceed cost of capital. Most firms attempt to maintain optimal mix of debt and equity financing. Pretax cost of debt = financing cost assoc w/ new funds thru long-term borrowing: funds usually raised thru sale of corporate bonds. Net proceeds = funds received by firm from sale of security. Flotation costs = total costs of issuing and selling security: underwriting costs compensation earned by investment bankers for selling security, administrative costs issuer expenses such as legal, accounting, and printing. After-tax cost of debt: interest payments paid by bondholders tax deductible interest expense on debt reduces firm"s taxable income and firm"s tax liability.