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

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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.

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Students have asked these similar questions

Compute Ke and Kn under the following circumstances: a. D1= $5, P0=$70, g=8%, F=$7 b. D1=$0.22, P0=$28, g=7%, F=2.50 c. E1 (earnings at the end of period one) = $7, payout ratio equals 40 percent, P0= $30, g=6%, F=$2,20. Note: D1 is the earnings times the payout rate. d. D0 (dividend at the beginning of the first period) = $6, growth rate for dividends and earnings (g)=7%, P0=$60, F=$3. You will need to calculate D1 (the dividend after the first period).

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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.

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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.

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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.

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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.