Incorporating the Cost of Capital

College
Research Proposal
Business
Pages 6 (1506 words)
Download 0
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…

Introduction

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 ...
Download paper
Not exactly what you need?

Related papers

The capital structure decision and the cost of capital
Thus a lesser D/E ratio would be recommended for a typical company. Therefore, D/E ratio = aggregate liabilities/ shareholders’ equity A very high D/E ratio would translate to the fact that the company has been applying debt in its growth to a high extent. The resultant impact is a scenario of very volatile earnings by the company due to the marginal interest expense. If a company applied a lot…
The capital structure decision and the cost of capital
Answer 1. Referring the balance sheet as on 5/1/2011, Source: http:/finance.yahoo.com/q/bs?s=NVDA+Balance+Sheet&annual (In thousands of US dollar) Total liabilities = 1,313,784 Short term liabilities = 942,682  Long term liabilities = 23,389 Total Equity = 3,181,462 Market capitalization = 10.92 Billion Hence debt ratio, total liability/ (total liability + total equity) =1,313,784/…
The Cost of Capital; Financial Leverage; Which Counts Most?
The high sale will result in higher profits and a reduction in variable costs signifies that the organization does not have to incur any extra expenses for each unit sold. An increased volume of sales will enable to company to save gain benefits from its fixed costs. The idea of operating leverage was initially developed for utilizing in capital budgeting. Operating leverage is a significant…
Incorporating the Cost of Capital
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:…
Importance of managing the firms weighted average cost of capital (WACC)
Managing WACC thus means keeping the WACC value lower than the company's after-tax returns, or in other words, reducing the cost of capital.This can be done by financing a major percentage of the purchase with the lowest cost of capital available, secured debts for instance, and the rest with personal equity held as cash, or by means of capital prioritisation, that is, using the cheapest source of…
Capital Budgeting Bachelor Essay
They stated that, in both situations, no investment costs to the organization are incurred and therefore it is impossible to compute capital budgeting estimates of utility, such as return on investment.…
Valuation of Securities and Cost of Capital
These book values are unreliable because they might be significantly different from the current value of these assets. The values of assets and liabilities are based on past transactions that demonstrate no account of the future prospects.…