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Question - Opportunity Cost of Capital - The opportunity cost of capital is a representation of the "effective interest rate" that someone experiences when they choose to invest their money into a project or real assets. We have talked about this extensively in class, and it has many names, but one of them was mentioned on many occasions.
1. What is the name (and abbreviation) of the model that you would use to represent a company's Opportunity Cost of Capital and the equation (formula) that is used to calculate it?
2. A company has 45 million euros worth of debt for which it must pay 6% interest. It has also issued shares, and it currently has 10 million shares outstanding. These shares trade at 5.50€ per share, and the shareholders demand a required return of 12%. The company is located in Chile, where the government has reduced the corporate tax rate to 10% in response to the global CoViD pandemic... What is the percentage of the company that is financed by debt?
3. For the company mentioned in the question (2), what is the percentage of the company that is financed by equity?
4. For the company described in questions (2) and (3), what is the Opportunity Cost of Capital for this company?
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
Coures:- Fundamental Accounting Principles: - Explain the goals and uses of special journals.
Accounting problems, Draw a detailed timeline incorporating the dividends, calculate the exact Payback Period b) the discounted Payback Period. the IRR, the NPV, the Profitability Index.
Term Structure of Interest Rates
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Create a cost-benefit analysis to evaluate the project
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Distinguish between liquidity and profitability.
Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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