Capital components The amount of capital expenditures made, or to be made, at which the Firm's marginal cost of capital increases. Investment opportunity schedule The return required by providers of capital loaned to the firm. Opportunity cost principle The average cost of a firm's financial capital when averaged across all of its outstanding debt and equity capital. Breakpoint This concept argues that a firm's retained earnings are not free to the firm. Target capital structure A firm's shareholder wealth-maximizing combination of debt, and common and preferred stock. Flotation costs These costs are generally expressed as a percentage of the total amount of securities sold, including the costs of printing the security certificates, applicable taxes, and issuance and marketing fees. Marginal cost of capital A table or graph of a firm's potential investments listed in decreasing order of their internal rates of return. Cost of capital The weighted average cost of the last dollar raised by a firm, or the firm's incremental cost of capital. Weighted average cost of capital This term refers to the individual sources of the firm's financing, including its debt, preferred stock, retained earnings, and newly issued common equity. Cost of debt The minimum return that must be earned on a firm's investments to ensure that the firm's value does not decrease. A firm's cost of retained earnings, or internal equity, can be estimated using a variety of methods. Match the formula and/or the term to its corresponding description. The cost is calculated by discounting the stock's expected future cash flows from dividends and capital gains. Bond-yield-plus-risk-premium approach This method assumes that the firm's cost of equity is related to its cost of debt. The cost is calculated as the sum of the market's risk-free rate and the product of the stock's beta coefficient and the market's risk premium. r_s = r_RF + beta_s (r_M - r_RF)