Primary means of raising the required additional funds

Reference no: EM13768593

To expand operations, firms often require more funds than can be generated from operations. These additional funds require a long-term source of capital. There are two primary means of raising the required additional funds: borrowing the funds (bonds), or selling ownership (stock shares). There is a cost to the firm of raising capital using either method. The firm expects to receive a financial benefit from the assets acquired with the raised capital. To ensure the benefit outweighs the cost of the capital, the firm must determine with some accuracy the cost of the capital and compare it to the benefit to be received. Determining the cost of borrowing is straightforward. Calculating the cost of selling shares in the firm is more complex.

Do the following to complete this assignment:

Explain the cost of capital and how it is determined.
Explain the concept of the optimal capital structure and how it can be determined.
Explain the concept of financial leverage and analyze how it can affect capital structure decisions.
Provide an example of a highly leveraged firm and estimate the leverage's effect when the firm is doing well, and when there is a downturn in sales.

Write a 2-3-page paper in Word format. Utilize at least three scholarly sources in your research. Make sure you write in a clear, concise, and organized manner; demonstrate ethical scholarship in accurate representation and attribution of sources; and display accurate spelling, grammar, and punctuation. Use the APA format.

Reference no: EM13768593

Questions Cloud

Business structures-sole proprietorship and partnership : Explain the following business structures: sole proprietorship, partnership, LLC, and a corporation. In your analysis address the following for each business structure: Steps to form

Design a moore machine that performs a parity check : Design (draw the diagram) a Moore machine that performs a parity check on the input string (string of 0 and 1): that is, the output string ends in 1 if the total number of 1-bits in the input string is odd and 0 if the total number of 1-bits in th..

Impacts of climate change on global food production : Discuss any two impacts of climate change on global food production and possible adaptation processes.

Analyze how sales forecast impacts : Analyze how sales forecast impacts all other forecasts for the firm, such as materials, labor, overhead, cash receipts, and disbursements.

Primary means of raising the required additional funds : To expand operations, firms often require more funds than can be generated from operations. These additional funds require a long-term source of capital. There are two primary means of raising the required additional funds: borrowing the funds (bo..

Analyze a simple program that utilizes a good design : Your project will be to analyze, design, and document a simple program that utilizes a good design process and incorporates sequential, selection and repetitive programming statements and the use of at least one array.

What is the impact of economic growth on the environment : What are the four main factors that contribute to the product growth in a country - What is the impact of economic growth on the environment?

Combined federal and state tax bracket : An investor recently purchased a corporate bond that yields 9.3%. The investor is in the 31% combined federal and state tax bracket. What is the bond's after-tax yield?

Environmental science dissucusion : Dental offices, which most people consider environmentally benign and which usually are not regulated under POTW pretreatment programs, are increasingly coming under scrutiny. Why? What contaminants or practices are of concern?

User Account

All Pages