Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
![QUESTION 5
Invest in any or all of the four projects whose relevant cash flows are given in the following table.
The firm has RM7,000,000 budgeted to fund these projects, all of which are known to be
acceptable. Initial investment for each project is the same for all projects which is RM1,600,000.
The rate of return for all projects is equivalent to 8%.
Operating cash outflow
Project X
Year 1
Project Y
Cash Outflow
RM1,600,000 (for each project)
Operating Cash Inflows
RM
440,000
RM
140,000
1
340,000
220,000
(110,000)
( 95,000 )
105,000
220,000
388,000
180,000
250,000
260,000
370,000
460,000
3.
4.
5.
6.
7.
8.
9.
Use this table for PROJECT X and Y
Period
PVIF 8%
1
0.9259
2
0.8573
3
0.7938
4
0.7350
0.6806
6
0.6302
7
0.5835
8
0.5403
9
0.5002
10
0.4632
8](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81ef57f5-c3e9-4d00-b1e3-c7c98821436d%2F6c4b7620-b6da-46a9-adb1-33de4bc52b74%2F9x8zjuh_processed.jpeg&w=3840&q=75)
![A) Compute the following for each option.
1. The NPV for each projects
2. The ANPV for each investment projects
3. Payback period for all projects
4. Profitability index for all project
5. Recommend which projects is more favorable in terms of accept-reject or ranking
decisions.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F81ef57f5-c3e9-4d00-b1e3-c7c98821436d%2F6c4b7620-b6da-46a9-adb1-33de4bc52b74%2Fdlmoq7p_processed.jpeg&w=3840&q=75)
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