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Equity Theory
This theory proposes that individuals measure their out- comes/input ratio. Equity theory distinguish that inspiration is not the outcome of an absolute calculation but is a relative calculation. If they calculate that others are getting more outcomes (salary, success) for the same input (effort) they perceive in equality. When people perceive an imbalance in their out- come/input ratio, tension is build up which gives a basis for motivation as people strive for perceived equity and fairness. Based on equity theory in conditions of perceived inequity employees can be predicted to make one of various choices. They can change their inputs (decrease effort), they can change their output (increase productivity), or reframe the conditions (distorting perceptions by changing referent other). Equity theory is not restricted to finance. It has been shown that job titles as well as office space and selection for project groups may also function as outcomes for some employees in their equity equation.
AOT limited is considering two mutually exclusive projects - cable and satellite. The possible NPVs for every project and their associated probabilities are as follows: Cable:
Advantages: It is easy to calculate and catch. With the help of this technique, projects can be ranked in terms of their economic merits without much of complication.
Q. Illustrate Earning Yield Method? Earning Yield Method: - As per this method, cost of equity capital is calculated by establishing a relationship between earning per share an
which type of financing is appropriate to each firm
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A company enters into a five-year interest rate swap along with a swap bank where it agrees to pay the swap bank a fixed-rate of 9.75 percent yearly on a notional amount of DM15,0
This is again a distinction which becomes important in case of a default. The senior bondholders have to be paid before the subordinate bondholders. This means th
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