Lesson 1264 of 1524
How Firms Raise Capital
Capital structure refers to how a company finances its assets.
Practice this chapterCapital structure refers to how a company finances its assets. The two main sources of capital are debt financing and equity financing.
The market values of debt and equity are used to calculate the weights of the components of the capital structure The cost of equity capital is not directly observed, so financial managers must estimate this cost.
capital — a company’s sources of financing. capital structure — the percentages of a company’s assets that are financed by debt capital, preferred stock capital, and common stock capital. two main sources of capital — debt financing and equity financing. interest tax shield — the reduction in taxes paid because interest payments on debt are a tax-deductible expense; calculated as the corporate tax rate multiplied by interest payments.
Worked example
What does “capital” mean in How Firms Raise Capital?
- 1Use the wording this chapter gives for capital.
- 2The book says: a company’s sources of financing.
- 3Do not use the meaning of capital structure. That term means the percentages of a company’s assets that are financed by debt capital, preferred stock capital, and common stock capital.
Result: a company’s sources of financing
Why. That is the meaning this chapter gives for capital.
Do not swap capital and capital structure. capital means a company’s sources of financing. capital structure means the percentages of a company’s assets that are financed by debt capital, preferred stock capital, and common stock capital.
Practice margin
This chapter
A fresh set from this chapter only. Choose 10 or 20. Multiple choice and fill-in, with no repeat inside the set.