Question

1) what is the cost of capital ?

2) what is the weighted average cost of capital ?

3) what is cost of a) cost of debt? b) cost preferred stock ? c) cost of common stock ?

Answer 1

1- cost of capital refers to the opportunity cost of making a specific investment.it is the financing costs that the company has to pay when borrowing money, using equity financing or selling bonds to fund an investment or a big project.

2- weighted average cost of capital is the calculation of firm's cost of capital in which each category of capital is proporsnately weighted.all source of capitals including common stocks ,preferred stocks ,bonds, long term debts are included in weighted average cost of capital calculation. it's an internal calculation of company's cost of capital.

3-(a)cost of debt is the interest a company pays on it's borrowing. It is usually expressed as an after tax rate because interest is diductible for income taxes.

3-(b) Cost of prefered stock to the company is the price it pays in return of the income it gets from issuing and selling stocks . The formula to find cost of preferred stock is,  

Company's annual devidend/ current price

4-cost of common stock is the rate of return required by the common shareholders. A cmmcom stock is a representation of partial ownership of a company. It allows investors to share in a company's sucess over time for which they can make long term investment.