Explain how the risk of a company’s stock can be quantified. How should that risk be evaluated differently in terms of a stand-alone investment or in a portfolio?
Weighted average cost of capital (WACC) is a firm’s expected average future cost of funds over the long run and is used in NPV and other calculations. Explain how WACC is determined and used by a firm. Explain, and differentiate between, the pros and cons of a firm issuing stock versus bonds.