which the firm decides which investment is most profitable is called capital budgeting. There are different methods by which a firm can find the economic valuation for a project: net present value (NPV)‚ internal rate of return (IRR) and profitability index (PI). Even though the firm has different evaluation methods to help it decide which project to choose‚ the decision is not always very clear. For instance‚ the future cash flows provided by the project to the firm are not always apparent. It is
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Capital structure describes how a corporation has organized its capital—how it obtains the financial resources with which it operates its business. Businesses adopt various capital structures to meet both internal needs for capital and external requirements for returns on shareholders investments. As shown on its balance sheet‚ a company’s capitalization is constructed from three basic blocks: Long-term debt. By standard accounting definition‚ long-term debt includes obligations that are not
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Understanding corporate value: managing and reporting intellectual capital Intellectual capital Contents 1 Introduction 4 2 Definitions of intellectual capital 6 2.1 2.2 Classifications of intellectual capital Why is intellectual capital so difficult to measure? 3 IC measurement 8 Generic models 3.1 Balanced scorecard 3.2 Performance prism 3.3 Knowledge assets map approach Individual company models 3.4 The Skandia navigator 3.5 Ericsson’s cockpit communicator
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SHARE CAPITAL Share capital is the Funds raised by issuing shares in return for cash or other considerations. The amount of share capital a company has can change over time because each time a business sells new shares to the public in exchange for cash‚ the amount of share capital will increase. Share capital can be composed of both common and preferred shares. Each share carrying a vote in the management of the business‚ managerial control may be limited. The authorized capital of a company is
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Management Unit – 4 Capital Structure Capital Structure • It refers to the kinds of securities and the proportionate amounts that make up capitalization. • A decision about the proportion among the three types of securities viz.‚ Equity shares‚ Pref. Shares and Debentures refers to the Capital Structure of an enterprise. What is “Capital Structure”? • Definition The capital structure of a firm is the mix of different securities issued by the firm to finance its operations. Securities
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put so much effort into getting the fleet from France. He would have also disregarded the Franco-German Armistice and Article VIII of the agreement. Nevertheless‚ Churchill did not follow this course of action‚ which makes it clear that his main priority from the beginning was to keep the French Fleet away from Germany. This is not to say that Churchill did not want to impress Roosevelt and did not use Operation Catapult as an opportunity to do it. He did. Churchill had attempted to persuade the
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Capital Budgeting Rules: NPV‚ IRR‚ Payback‚ Discounted Payback‚ AAR Categories of Plans 1. Replacement Projects: decisions to replace old equipment – those are among the easier of capital budgeting techniques. It is important to decide whether to replace the equipment when it wears out or to invest in repairing the machine. 2. Expansion Projects: These are decisions whether to increase the size of business or not – they are more uncertain than replacement projects. 3. New products and services: These
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Chapter 8 The Cost of Capital 236 CHAPTER 8—THE COST OF CAPITAL TRUE/FALSE 1. Capital refers to items on the right-hand side of a firm’s balance sheet. 2. The component costs of capital are market-determined variables in as much as they are based on investors’ required returns. 3. The cost of debt is equal to one minus the marginal tax rate multiplied by the coupon rate on outstanding debt. 4. The cost of issuing preferred stock by a corporation must be adjusted to an after-tax
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Capital Budgeting Case Study QRB/501 February 23‚ 2014 Introduction The purpose of this paper is to analyze and interpret the answers of the Capital Budgeting Case. I will discuss my recommendation about which Corporation and investor should acquire based on the quantitative reasoning. I also will describe the relationship between the net present value and the internal rate of return for the two corporations that are analyzed. Capital Budgeting Case A company is planning in acquiring
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Chapter 6 Capital investment:regardless of whether they involve a tangible or intangiable asset. The incestment creates wealth if the discounted value of the future cash flow exceeds the up front cost. The problem is what to discount- stick to these rules: 1. Only cash flow is relevant. Net present value depends on future cash flows it’s the difference between cash received and cash paid out. Cash should be recorded only when they occur and not when work is undertaken or a liability is incurred
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