Capital: Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth. Cost of capital: Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment. To ascertain: The reason why a firm’s capital has a cost.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 13, Problem 1CC

Summary Introduction

Capital:

Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To ascertain: The reason why a firm’s capital has a cost.

Expert Solution & Answer

Explanation of Solution

Cost of capital is the cost paid to the investors for making an investment in a firm. It may be in the form of Dividend cost or Interest cost. In certain firms, there will be also some non-monetary costs such as Bonus shares and Right shares.

A firm may raise money from both equity and debt. Both the equity holders and debt holders in a firm have a definite rate if return, since they forego the opportunity to invest the money in some other investment. The activity of providing this is the cost, which a firm bears in order to obtain capital from investors. Such cost is measured by the Cost of capital or the Weighted Average Cost of Capital.

Conclusion

Hence, a firm’s capital has a cost in order to pay to the investors for making an investment in the firm.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

XYZ stock price and dividend history are as follows: Beginning-of- $ 130 Dividend Paid at Year Year Price Year-End 2021 $ 2 2022 2023 153 2 2024 128 133 2 2 An investor buys five shares of XYZ at the beginning of 2021, buys another two shares at the beginning of 2022, sells one share at the beginning of 2023, and sells all six remaining shares at the beginning of 2024. Required: a. What are the arithmetic and geometric average time-weighted rates of return for the investor? Note: Do not round intermediate calculations. Round your answers to 2 decimal places. Arithmetic time-weighted average returns Geometric time-weighted average returns % % b-1. Prepare a chart of cash flows for the four dates corresponding to the turns of the year for January 1, 2021, to January 1, 2024. Note: Negative amounts should be indicated by a minus sign. Date 01/01/2021 01/01/2022 Cash Flow 01/01/2023 01/01/2024 b-2. What is the dollar-weighted rate of return? (Hint. If your calculator cannot calculate…

Consider the following two banks: Bank 1 has assets composed solely of a 10-year, 11.50 percent coupon, $1.5 million loan with a 11.50 percent yield to maturity. It is financed with a 10-year, 10 percent coupon, $1.5 million CD with a 10 percent yield to maturity. Bank 2 has assets composed solely of a 7-year, 11.50 percent, zero-coupon bond with a current value of $1,108,283.85 and a maturity value of $2,374,515.87. It is financed with a 10-year, 5.75 percent coupon, $1,500,000 face value CD with a yield to maturity of 10 percent. All securities except the zero-coupon bond pay interest annually. a. If interest rates rise by 1 percent (100 basis points), what is the difference in the value of the assets and liabilities of each bank? Note: Do not round intermediate calculations. Negative amounts should be indicated by a minus sign. Enter the answers in dollars, not millions of dollars. Round your answers to 2 decimal places. (e.g., 32.16) Before Interest Asset Value After Interest…

TIME TO REACH A FINANCIAL GOAL You have $42,180.53 in a brokerage account, and you plan to deposit an additional $5,000 at the end of every future year until your account totals $250,000. You expect to earn 12% annually on the account. How many years will it take to reach your goal? Round UP to the nearest year. (Example 5.01 years = 6 years) Your answer should include numerical value only.

Answer 2

Question

Chapter 13, Problem 1CC

Summary Introduction

Capital:

Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To ascertain: The reason why a firm’s capital has a cost.

Expert Solution & Answer

Explanation of Solution

Cost of capital is the cost paid to the investors for making an investment in a firm. It may be in the form of Dividend cost or Interest cost. In certain firms, there will be also some non-monetary costs such as Bonus shares and Right shares.

A firm may raise money from both equity and debt. Both the equity holders and debt holders in a firm have a definite rate if return, since they forego the opportunity to invest the money in some other investment. The activity of providing this is the cost, which a firm bears in order to obtain capital from investors. Such cost is measured by the Cost of capital or the Weighted Average Cost of Capital.

Conclusion

Hence, a firm’s capital has a cost in order to pay to the investors for making an investment in the firm.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 13, Problem 1CC

Summary Introduction

Capital:

Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To ascertain: The reason why a firm’s capital has a cost.

Expert Solution & Answer

Explanation of Solution

Cost of capital is the cost paid to the investors for making an investment in a firm. It may be in the form of Dividend cost or Interest cost. In certain firms, there will be also some non-monetary costs such as Bonus shares and Right shares.

A firm may raise money from both equity and debt. Both the equity holders and debt holders in a firm have a definite rate if return, since they forego the opportunity to invest the money in some other investment. The activity of providing this is the cost, which a firm bears in order to obtain capital from investors. Such cost is measured by the Cost of capital or the Weighted Average Cost of Capital.

Conclusion

Hence, a firm’s capital has a cost in order to pay to the investors for making an investment in the firm.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 13, Problem 1CC

Summary Introduction

Capital:

Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To ascertain: The reason why a firm’s capital has a cost.

Expert Solution & Answer

Explanation of Solution

Cost of capital is the cost paid to the investors for making an investment in a firm. It may be in the form of Dividend cost or Interest cost. In certain firms, there will be also some non-monetary costs such as Bonus shares and Right shares.

A firm may raise money from both equity and debt. Both the equity holders and debt holders in a firm have a definite rate if return, since they forego the opportunity to invest the money in some other investment. The activity of providing this is the cost, which a firm bears in order to obtain capital from investors. Such cost is measured by the Cost of capital or the Weighted Average Cost of Capital.

Conclusion

Hence, a firm’s capital has a cost in order to pay to the investors for making an investment in the firm.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 13, Problem 1CC

Summary Introduction

Capital:

Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To ascertain: The reason why a firm’s capital has a cost.

Expert Solution & Answer

Explanation of Solution

Cost of capital is the cost paid to the investors for making an investment in a firm. It may be in the form of Dividend cost or Interest cost. In certain firms, there will be also some non-monetary costs such as Bonus shares and Right shares.

A firm may raise money from both equity and debt. Both the equity holders and debt holders in a firm have a definite rate if return, since they forego the opportunity to invest the money in some other investment. The activity of providing this is the cost, which a firm bears in order to obtain capital from investors. Such cost is measured by the Cost of capital or the Weighted Average Cost of Capital.

Conclusion

Hence, a firm’s capital has a cost in order to pay to the investors for making an investment in the firm.

Answer 6

Chapter 13, Problem 1CC

Summary Introduction

Capital:

Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To ascertain: The reason why a firm’s capital has a cost.

Expert Solution & Answer

Explanation of Solution

Cost of capital is the cost paid to the investors for making an investment in a firm. It may be in the form of Dividend cost or Interest cost. In certain firms, there will be also some non-monetary costs such as Bonus shares and Right shares.

A firm may raise money from both equity and debt. Both the equity holders and debt holders in a firm have a definite rate if return, since they forego the opportunity to invest the money in some other investment. The activity of providing this is the cost, which a firm bears in order to obtain capital from investors. Such cost is measured by the Cost of capital or the Weighted Average Cost of Capital.

Conclusion

Hence, a firm’s capital has a cost in order to pay to the investors for making an investment in the firm.

Answer 7

Chapter 13, Problem 1CC

Summary Introduction

Capital:

Capital refers to financial assets or the financial values of assets, like funds held in deposit accounts and tangible machinery and production equipment used in factories and firms. It can also be referred as the money, credit, and other types of funding that create wealth.

Cost of capital:

Cost of capital can be defined as the opportunity cost used to make a specific investment. It refers to the rate of return that may be earned by investing the same amount in a different investment involving equal amount of risk. Thus, it is the rate of return needed to convince an investor to make an investment.

To ascertain: The reason why a firm’s capital has a cost.

Answer 8

Expert Solution & Answer

Explanation of Solution

Cost of capital is the cost paid to the investors for making an investment in a firm. It may be in the form of Dividend cost or Interest cost. In certain firms, there will be also some non-monetary costs such as Bonus shares and Right shares.

A firm may raise money from both equity and debt. Both the equity holders and debt holders in a firm have a definite rate if return, since they forego the opportunity to invest the money in some other investment. The activity of providing this is the cost, which a firm bears in order to obtain capital from investors. Such cost is measured by the Cost of capital or the Weighted Average Cost of Capital.