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    Creating and Selling Securities to Finance

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    Because the weighted average given in the equation shown below is always a correct measure of a required return, why do firms not create securities to finance each project and offer them in the capital markets in order to accurately determine the required return for project?

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    Weighted Average
    Because the weighted average is a correct measure of a required return, why do firms not create securities to finance each project and offer them in the capital market in order to accurately determine the required return for project?

    Project Ahead
    Initial ----------------------------------------------------------------------------------
    1 2 3 4 5
    years years years years years

    Weighted average cost of capital manifests the combined costs of capital of all the company's sources of financing. They are normally expressed in after tax basis. According to Keown (2002), the weighted average cost of capital is the average of the after - tax costs of each of the sources of capital used by the firm to ...

    Solution Summary

    The solution discusses creating and selling securities to finance.

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