Why should the cost of capital be calculated as a weighted average
of the various types of funds a firm generally uses, not the cost of
the specific financing used during a given year?
Identify the firm’s three major capital structure components, and
give their respective component cost symbols.
Why might there be two different component costs for common
equity? Which is the one that is generally relevant, and for what
type of firm is the second one likely to be relevant?
Why is the after-tax cost of debt rather than the before-tax cost used
to calculate the WACC?
Why is the relevant cost of debt the interest rate on new debt, not
that on already outstanding, or old, debt?
