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
- What is primary and secondary market? An IPO is undertaken on primary or secondary market?
- What is the essential job of an investment banker?
- Why a stock exchange is called an auction market?
- What are the five basis principles of finance?
- Your company is considering choosing one of the two projects: Project Gold and Project Diamond. Each project will last 5 years and have no salvage value at the end. The company’s required rate of
return for all investment projects is 9%. The cash flows of the two projects are provided below.Gold
Diamond
Cost
$485 000
$520 000
Future Cash Flows
Year 1
Year 2
Year 3
Year 4
Year 5
105 850
153 250
225 650
245 000
250 350
117 050
162 400
275 500
255 000
260 000
Required: Identify which project should your company accept based on Discounted Payback Period method if the payback criterion is maximum of 2.5 years.
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