Cost of capital bingo

Exercise and reference answers

Clues and terms

1. Clue

   Weighted cost of both sources.

   Item

   WACC

2. Clue

   Rate to refinance borrowing.

   Item

   Cost of debt

3. Clue

   Interest cuts the tax bill.

   Item

   Tax shield

4. Clue

   Prices systematic risk.

   Item

   CAPM

5. Clue

   Measures systematic risk.

   Item

   Beta

6. Clue

   Cost of placing new shares.

   Item

   Flotation

7. Clue

   The debt a firm uses.

   Item

   Leverage

8. Clue

   Debt weighed both ways.

   Item

   Trade-off

9. Clue

   Risk that rises with debt.

   Item

   Distress

Instructions

Read each clue and tap the term it describes.

Explanation