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Strategic Corporate Finance
Finance & Accounting
Pages 5 (1255 words)
Finance Module 3 Case Assignment Name of the Writer Name of the Institution Finance Module 3 Case Assignment Part I What is the Cost of Equity Capital for a Firm? A corporation that wants to expand in the marketplace naturally needs more finances and funding to undertake its plans for local, national or even international expansion and to this end it must also have a good strategy for marketing and distribution of its products and services.
Quite simply, the investors also have their own set of motivations and would only be willing to invest in a corporation’s equity or debt if it meets with their required rate of return. They may be willing to take a risk in investing in a particular firm if the returns from this are higher than that offered by US Treasury bonds with one year to maturity. Since the rate of return on these bonds are guaranteed by the US Government, they are thought to be a riskless investment, assuming that the US Government will never default on payment of the principal and interest on the due dates. Consequently in financial circles, the market rate on such US bonds is known in common parlance at the ‘risk free rate.’ The investors could put their money into such an investment and rest assured that they would earn this rate of interest without too much worry at all. Therefore in order to induce the investor to invest in the equity or debt of a particular corporation, that firm or business must offer a higher rate of interest. ...
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