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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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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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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Capital budgeting is the process of evaluating and selecting long-term investments that are in line with the goal of investors’ wealth maximization. When a business makes a capital investment (assets such as equipment‚ building‚ land etc.) it incurs a cash outlay in the expectation of future benefits. The expected benefits generally extend beyond one year in the future. Out of different investment proposals available to a business‚ it has to choose a proposal that provides the best return and the
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Capital Budgeting Mini Case There are many different methods business owners use to efficiently analyze business investment. One of these effective methods is the calculation of the net present value or NPV. The second most effective method would be the calculations of the internal rate of return or IRR. There are also other useful methods as well‚ for example‚ the payback rule and the profitability index. Many business owners use the above procedures to help them in their decision making of acquiring
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Multinational Capital Budgeting International Financial Management Dr. A. DeMaskey Learning Objectives How does domestic capital budgeting differ from multinational capital budgeting? How do incremental cash flows differ from total project cash flows? What is the difference between foreign project cash flows and parent cash flows? How does APV analysis differ from NPV analysis? How is the capital budgeting analysis adjusted for the additional economic and political risks
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Capital Budgeting Case Theresa Cruz‚ Jesika Watson‚ Sophina Lane QRB/501 March 30‚ 2015 Melinda Gregg Capital Budgeting Case Analyzing the Results In the two capital budgeting cases corporations (A and B) have different revenues values and expenses as well as variable depreciation expenses‚ tax rates and discount rates. The members of our team had to compute both corporate cases NVP‚ IRR‚ PI‚ Payback Period‚ DPP‚ and project a 5-year income statement and cash flow in a Microsoft Excel spreadsheet
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Financial Management Project Document Team 5 Contents Portfolio .................................................................................................................................................................. 2 Amazon.com Inc. (AMZN) ...................................................................................................................... 2 Intel Corporation (INTC) ...............................................................................................
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A STUDY ON “CAPITAL BUDGETING” WITH REFEREENCE TO BHARAT HEAVY ELECTRICIAL LIMITED A project report submitted in partial fulfillment of requirments for the awards of degree of MASTER OF BUSINESS ADMINISTRATION BY DEPARTMENT OF BUSINESS MANAGEMENT SRI INDU INSTITUTE OF MANAGEMENT (AFFILIATED TO OSMANIA UNIVERSITY) 2007-2009 ACKNOWLEDGEMENT My sincere thanks are due to all who have helped me in various ways in the course of the project. I am deeply grateful to MR.P.V.ARUN KUMAR for giving
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decision(s) about which capital projects will be undertaken by a firm. Nominal cash flows determine its degree of profitability. However‚ in making the capital budgeting decision both real and nominal concepts must be considered. The purpose of this paper is to continue the discussion of the role of inflation in capital budgeting‚ and to focus on the individual components of the process to draw specific conclusions with respect to the interaction between the cost of capital‚ inflation‚ and the cash
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