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Possible sources of capital

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1. Define the cost of equity capital. Is it an accounting cost? If not, what is it? Is it a low cost source of capital or a high cost source compared to other possible sources of capital? Explain. What would happen to a firm if it failed to deliver to its common stockholders the cost of equity capital? This question refers only to common equity.

2. What happens to the financial risk of a firm as it increases the amount of debt in its capital structure? What happens to the cost of debt and to the cost of equity as the firm increases the amount of debt in its capital structure? How would managers of a firm go about trying to find the optimal capital structure for the firm?

Reference no: EM131251448

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