Obtaining Debt Financing - Assignment Example

The weighted average cost of capital is the cost based on the relative significance of each source of capital. It is the product of the percentage contribution of each source of capital and percentage cost of each source. It, therefore, consists of debt, preferred stock, common stock, and their percentage contribution, and costs. It is more appropriate in capital budgeting because it gives accurate average values for each unit capital that it derives from the different sources. WACC informs organizations towards the optimal cost of long-term capital by identifying unit costs (Bragg, 2011).

Initial Public Offer defines an initial launch of a company’s shares, in the stock market, to the public. The offering company avails its share for purchase in return for the cost of the stock. This allows an organization to grow financially because it creates cash inflow without material cash outflow from the offering company. Merger and acquisition is a more appropriate way to grow when growth prospects extend beyond finances to include expertise, market control, and property, among other resources (Bragg, 2011).