Answer the following conceptual questions related to the WACC (when valuing a firm)

a. How is the weighted average cost of capital calculated? Write out the equation.

b. Why is the weighted average cost of capital the appropriate rate to discount the FCFs of a firm?

c. What is a target capital structure?

d. Why is the after-tax cost of debt, rather than its before-tax required rate of return, used to calculate the weighted average cost of capital?

e. Is the relevant cost of debt, when calculating the WACC, the coupon rate on existing debt or the yield to maturity on existing debt? Why?

f. What are the two primary sources of equity capital? Explain why there is a cost to using reinvested (retained) earnings; that is, why arent reinvested earnings a free source of capital?