Risk can be defined in several ways. However, one fairly simple definition is that “risk refers to the uncertainty of a return and the potential for financial loss.” Risk can arise from financing and operating activities and can be classified…

Flotation costs are expenses that a company incurs during the process of raising additional capital. The value of these flotation costs is related to the amount and type of capital being raised. When a company raises debt and preferred stock,…

A preferred stock that does not give its holder the right to convert their preferred shares into a fixed number of common shares, usually after a predetermined date, is called a nonconvertible preferred stock. A noncallable, nonconvertible preferred stock is…

The cost of debt is the cost of financing a debt whenever a company incurs a debt by either issuing a bond or taking a bank loan. Two methods for estimating the before-tax cost of debt are the yield-to-maturity approach…