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1) Future cost and historical cost: financial decision is based on the future cost and not on the historical cost. The decision related to the future and hence the cost are likely to be incurred in furthered costs.
2) Specific cost and composite costs: the cost of individual source of the capital of all the sources combined in the terms as composite cost or overall cost. It is thus the weighted cost thus. the cost of debenture and preference shares equity shares and retained earnings is to be secretly calculated first and then combined cost can be computed since the combined cost consider the quantum of the financing through each cost the cost is known as the weighted cost. It is this overall which is the important in the evaluating of a firm as on ongoing entity. The composite cost of capital is the cost which is to be considering while the evaluating capital project also. In case only one source of financing is to be used for the investment proposal the specific cost of that source of that funds may be consider but in a capital structure decision, it is always the weighted cost of capital that is significant.
DISCOUNTING TECHNIQUE is also called present value technique. It is the process of calculating the present value of cash flows. Discounting is determining the present value of a
In a putable bond, the bondholder has the right to force the issuer to pay off the bond prior to the maturity date. Let us consider the previous example with the
1. Using ratio analysis, compare your fifth year to the current year and discuss. 2. Compute the expected stock price at the end of the fifth year. Assume your stockholders hav
cost of capital in finance
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Explain the concept of the Sharpe performance measure. Answer: The Sharpe performance measure abbreviated as SHP is a risk-adjusted performance measure. It is denoted as the mea
Partial Income Statement Year Ending 2011 Sales Revenue $350,000 COGS $140,000 Fixed Costs $ 43,000 SG&A E
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