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Incorporating the Cost of Capital
Pages 6 (1506 words)
The objective of the paper is persuade managers of the importance of including cost of capital in their decision making activities. The cost of capital is arrived at by by including the interest paid for borrowing money. The inclusion of the interest paid for money borrowed is called present value…
On the other hand, A negative net present value is a bad management decision. Thus, management must not push through with the planned investment. The Net present value is arrived at by the following:
The managers will invest in a capital asset only if the net cash inflows are more than cost of capital. The difference between the two is the net cash inflow. The entire articles gives evidences that this very popular formula is more than just a formula. The entire journal is devoted to giving importance to the factors of sales, variable expenses and costs, as well as fixed expenses an costs. Clearly, the objective of the paper is persuade managers of the importance of cost of capital in decision making activities.
The objectives are correctly stated. The objective truly draws the reader to the reasons of managers in using the various components in the cost volume profit analysis. For, the article clearly explains how the sales, variable expenses and costs as well as fixed expenses contributed to the increase and decrease of net income. The article clearly shows that cost of capital is a very important tool in determining if it would be economically profitable to infuse more money into a high monetary value assets (Schneider,1). Obviously, the objectives are correctly stated.
One of the key issues considered in the article shows that cost of capital is arrived at by by including the interest expense spend fo ...
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