Cost of Capital Firms need to make capital investment i.e.‚ purchasing fixed assets such as factories‚ machineries‚ equipment‚ etc. After deciding what capital investments to make‚ they need to decide on the financing – sources of capital. The sources: Long-Term Debt‚ Common Stock‚ Preferred Stock and Retained Earnings. Then they need to find the cost of obtaining each source of financing today (not historical). Cost of Capital - The rate of return that a firm must earn on its investment
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ON CHAPTER 15 (COST OF CAPITAL) 1.) The Wind Rider Company has just issued a dividend of $2.10 per share on its common stock. The company is expected to maintain a constant 7% growth rate on its dividends indefinitely. If the stock sells for $40 a share‚ what is the company’s cost of equity? 2.) The Ball Corporation’s common stock has a beta of 1.15. If the risk free rate is 5% and the expected return on the market is 12%‚ what is Ball Corp.’s cost of equity capital? 3.) Stock
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What is cost of capital? The cost of capital is the cost of obtaining funds‚ through debt or equity‚ in order to finance an investment. It is used to evaluate new projects of a company‚ as it is the minimum return that investors expect for providing capital to the company‚ thus setting a benchmark that a new project has to meet. Importance The concept of cost of capital is a major standard for comparison used in finance decisions. Acceptance or rejection of an investment project depends on the
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Answers to Warm-Up Exercises E9-1. Answer: Weighted average cost of capital N 10‚ PV $20‚000 (1 0.02) $19‚600‚ PMT Solve for I 8.30% 0.08 $20‚000 $1‚600‚ FV $20‚000 E9-2. Cost of preferred stock Answer: The cost of preferred stock is the ratio of the preferred stock dividend to the firm’s net proceeds from the sale of the preferred stock. rp Dp Np rp (0.15 $35) ($35 $3) rp $5.25 $32 16.4% E9-3. Cost of common stock equity Answer: The cost of common stock equity can be found by dividing the dividend
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WEIGHTED AVERAGE COST OF CAPITAL FOR DELL COMPUTER 1) From the SEC website‚ the balance sheet of Dell Computer reveals a Book value of debt = $3‚394‚000‚000 and Book value of equity = $4‚625‚000‚000 The same balance shows the breakdown of the long-term debt (book values) in table 1. Table 1 Coupon Rate (%) Maturity Book Value (Face Value in million $) 3.38 06/15/2012 400 4.70 04/15/2013 599 5.63 04/15/2014 500 5.65 04/15/2018 499 5.88 06/15/2019 600 7.10 04/15/2028 396 6
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human capital via HRM is rooted in the needs of the organisation rather than opting for an ‘off the shelf’ closed option such as ‘Best Practise’ or high performance work practices. Theorists have yet to settle on a definitive model for best practise‚ which itself suggests a certain degree of flexibility is built into the interpretation of what it could be. Here lies the first contradiction to the pro best practise argument as these rigid principals are yet to be defined. Debatably‚ best practise
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The two types of cost estimating techniques that I am going to compare and contrast are parametric procedures applied to specific tasks and phase estimating. These two techniques are a part of bottom-up approaches but apply processes from top-down approaches. They both use techniques that allow for estimating projects by breaking down into sections. In comparison the parametric procedures breaks the projects down into specific tasks and the phase estimation breaks the projects down in a time line
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assistant‚ Joanna Cohen‚ to estimate Nike’s cost of capital‚ which‚ per Cohen’s analysis‚ came to 8.4%. Background The cost of capital is the minimum return that a company should make on an investment or the minimum return necessary for investors to cover their cost. Two main factors of the cost of capital are the cost of debt and the cost of equity. The capital used for funding a business should earn returns for the investors who risk their capital. For an investment to be worthwhile
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Capital Punishment: The Ultimate Consequence Capital punishment is exactly what it sounds like-the death penalty- and it is the ultimate judicial consequence for those who commit the most violent of crimes. This punishment is the optimum consequence in the United States Judicial System and one that is not and has never been taken lightly. Criminals pay the price for the crimes they commit‚ so if their crime is so awful that their decided punishment by this country’s judicial system is death‚ then
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Case Study of Cost of Capital at Ameritrade 1-a How can the CAPM be used to estimate the cost of capital for a real business investment decision? CAPM results can be compared to the best expected rate of return that investor can possibly earn in other investments with similar risks‚ which is the cost of capital. Under the CAPM‚ the market portfolio is a well-diversified‚ efficient portfolio representing the non-diversifiable risk in the economy. Therefore‚ investments have similar risk if they
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