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Q. Computation of the cost of capital?
Computation of overall cost of capital of the firm invoices
Cost of debts: debt may be issued at par , at premium or discount it may be perpetual or redeemable . the technique of computation of the costs in each can be explained as follows :
i) Debt issue at par: the computation of the cost of debts issued at par is comparative an easy task. It is the explicit rate of the interest rate adjusted further for the tax liabilities of the company. It may be computed according to the followings formula
Kd= (1-T)R
ii) Debts issued at the premium or discount: in case the debenture issued at premium or discount the cost of the debts should be calculated on the basis of net proceeds realized on the accounts of issue of such debenture or the bonds. Such costs may further be adjusted keeping in the view the tax rate applicable to the company
iii) Cost of the redeemable Debts: while calculating the cost of debts we have presumed that debenture are not redeemable during the life time of the company. However if the debenture are redeemable after the expiry limit of a fixed period the effective cost of the debenture before tax can be calculated by using the followings -
KD(before Tax) = {l+(p-np)/n}/{ (p+np)/2}
The managing directors of three profitable listed companies discussed their companies' dividend policies at a business lunch. Company A ; has deliberately paid no dividends for
WHAT ARE THE IMPORTANCE OF DIVIDEND DECISION IN FINANACIAL MANAGEMENT?
What is Coupon Rate Coupon rate is the stipulated interest rate to be paid on the face value of a bond. It represents a fixed dollar amount which is paid periodically as long
Dividends and interest payments Payment of dividends and interest can either be demonstrated under financing activities or under operating activities. Sum of the 3
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A company has the opportunity to sell an old machine. The machine is fully depreciated to a zero book value but could be sold for $5,000. If the company did not sell the machine, i
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Write a report to the Board of Directors of Solvent Ltd to analyse the performance of companies X and Y and to give recommendation as which of those two investment opportunities is
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