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Q. Cost of capital?
The terms of cost of capital refers to the minimum rate of the return a firm must earn on its investment so that the market value of the company equity share fall. This is consonance with the overall object of the firm of wealth maximization. This is possible only when the firms earn the return on the project financed by the equity share holders at a rate which is least equal to the rate of the return expected by them . If a firms fail to earn the return at the expected rate the market value of the share would fall and thus result in reduction on overall wealth of the shareholders.
According to james : a cut off rate for the allocation of the capital to investment of the project . It is the rate of the return on a project that will leave unchanged the market price of the stock.
According to the Hampton: the rate of return of the firm require for the investment in order to increase the value of the firm in the market price.
Potential drawbacks of divestment - There may be some loss of economies of scale. Fixed overheads would have a lower capacity to recover them. - Cash generated may not be
Suppose you can decrease the cash on hand and the company will require holding Net Working Capital (including cash) equal to 4% of the next year's sales going forward. This will r
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Q. What is Affiliated Company? Affiliated Company - Company or other organization related through common ownership,common control of management or owners or through some other
how do we get the pvif of a perpetuity
Cost-Volume-Profit Analysis The Cost-Volume-Profit (CVP) analysis provides answers to vital questions such as: At what sales volume would the firm break-even? How sensitive is
To calculate the Cost of Capital, we will use the Weighted Average Cost of Capital (WACC) formula WACC = (E/V) X R E + (D/V) X R D X (1 - T C ) where
assume that risk free rate is 8% and expected rate of return in market is 12%. what is the required rate of return on stock with a beta of 0.8%
Defined Contribution Plans In defined contribution plans, the contributions made by or on behalf of the employee are accumulated and paid on retirement along with such return a
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