Not all financing is created equal. Some types are cheaper than others and some are riskier than others for the issuing company. This is an issue for all businesses, large and small. All businesses are striving to come up with a combination of financing that is not only safe for them but low in cost. The primary types of financing are debt/bonds, preferred stock, new common stock, and internal common stock (retained earnings). Firms will have a combination of these financing options and, as a result, will have a weighted average of their various types of cost of capital. It is important for you to understand the cost of capital and what factors impact the level of costs. Firms that can lower costs of capital typically have a better array of investing options and with that more opportunities to increase company value.

For this discussion, prepare a post that considers these points:

How is risk incorporated to determine the weighted average cost of capital (WACC) for a company?

Which of the cost components that go into WACC is the most expensive form of financing to a firm, and which is the cheapest?

Explain why, and indicate ways companies can lower their WACC.