Importance of the cost of capital, Financial Management

Assignment Help:

Q. Importance of the cost of capital?

1. Evaluating financial performance: the actual profitability of the project is compared to the projected overall cost of capital and the actual cost of capital of funds raise to finance the project. if the actual profitability of the project is more than the projected and actual cost of the capital, the performance may be said to be satisfactory.

2. Acceptance criterion in the capital budgeting: Capital budgeting decision can be made by the considering the cost of the capital. Accounting to NPV methods of capital budgeting if the present value of the expected return from investment is greater than or equal to the cost of investment the project may be accepted, otherwise the project may be rejected. They present value of expected return is calculated by the discounting the expected cash inflow at the cut of rate (which is the cost of the capital).

3. Determination of capital mix in capital structure decision: financing the firm's assets. While designing an optimal capital structure, the management has to keep in mind the objective of maximizing the value of the firm and minimizing the cost of capital. Measurement of cost of capital from various sources is very essential in planning the capital structure of any firm.

4. Taking other financial decision: the cost of capital from various sources is very essential in planning the capital structure of any firm.


Related Discussions:- Importance of the cost of capital

Liabilities, Liabilities The company must take into account the nature ...

Liabilities The company must take into account the nature of its liabilities as well as its solvency position. Cash Flows: Besides the investment yields, money flows as paid

Capital structure, Modi Wires and Cable Ltd intends to finance its INR 20 m...

Modi Wires and Cable Ltd intends to finance its INR 20 million modernization plan for which it is trying to decide between debt and external equity. The management feels that the e

Show the supposition of mm hypothesis, Q. Show the Supposition of MM Hypoth...

Q. Show the Supposition of MM Hypothesis? Supposition of MM Hypothesis:- (i) There are ideal capital markets. (ii) Investors act rationally. (iii) Information regardin

Write a market outlook for bond markets, The requirement of this assignment...

The requirement of this assignment that you write a Market Outlook for Bond Markets in a report form, in which you present your assessment of  the investment potential of global so

Global economy, Global Economy: The size of the world stock market grew...

Global Economy: The size of the world stock market grew steadily in the 1970s and 1980s and crossed the $12 trillion figure in 1993. The share of the US market decreased tremen

Illustrate report on cash flow budget, Q. Illustrate report on cash flow bu...

Q. Illustrate report on cash flow budget? The cash flows The principal reason why certain statistics were not included in the cash flows is that they are incremental cash

Strategic investment and decision-making, Carr, C., Kolehmainen, K. and Mit...

Carr, C., Kolehmainen, K. and Mitchell, F. (2010) ‘Strategic investment decision-making practices: a contextual approach', Management Accounting Research, 21, 167-84. (a) What a

Explain the principles of taxation and double taxation, Question 1 ) A Glob...

Question 1 ) A Globalization is a procedure of international integration that arises due to increasing human connectivity as well as the interchange of products, ideas and other ph

Clearly explain speculation, QUESTION 1 Assuming perfect capital mobili...

QUESTION 1 Assuming perfect capital mobility under Mundell-Fleming Model, clearly explain the effectiveness of- i) an expansionary fiscal policy under a fixed exchange rate

Government bonds, Government securities are the most important and un...

Government securities are the most important and unique financial instruments in the financial markets of any economy. Government of India Securities (GOI Sec) in

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd