SIT runs a retirement account for teachers, with a current market value of $3billion. MJK Co. offers to conduct market research in an attempt to sift through the market data to find a way to increase the return to SIT's portfolio by 40basis points this year. MJK Co. is offering to conduct the research for the sum of $8million. This price is too Question Blank 1 of 3 choose your answer... high, low because the maximum amount that SIT is willing to pay is Question Blank 2 of 3 choose your answer... 7 million 6 million 12 million 15 million. Therefore, SIT would definitely Question Blank 3 of 3 choose your answer... should not, should conduct the research to increase the portfolio return.
Cost of Capital
Shareholders and investors who invest into the capital of the firm desire to have a suitable return on their investment funding. The cost of capital reflects what shareholders expect. It is a discount rate for converting expected cash flow into present cash flow.
Capital Structure
Capital structure is the combination of debt and equity employed by an organization in order to take care of its operations. It is an important concept in corporate finance and is expressed in the form of a debt-equity ratio.
Weighted Average Cost of Capital
The Weighted Average Cost of Capital is a tool used for calculating the cost of capital for a firm wherein proportional weightage is assigned to each category of capital. It can also be defined as the average amount that a firm needs to pay its stakeholders and for its security to finance the assets. The most commonly used sources of capital include common stocks, bonds, long-term debts, etc. The increase in weighted average cost of capital is an indicator of a decrease in the valuation of a firm and an increase in its risk.
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