Assignment1

The purpose is that the cost capital will be used for capital budgeting, financial accounting, performance assessment, stock repurchases estimations. Also the cost of capital is a necessary basis for the expected growth and forecasted demand.

This mini-case provides a review of the methodology and rationale associated with the various capital budgeting evaluation methods such as payback period, discounted payback period, NPV, IRR, MIRR,

The comptroller currently finds the weights for the weighted average cost of capital (WACC) from information from the balance sheet shown in Table 2. Compute the book value weights that the comp­trol­ler currently uses for the company’s capital structure.

Rt - The net cash flow (-$100,000, $32,000, $32,000, $32,000, $32,000, $32,000) amount of cash, inflow minus outflow) at time t.

any costs for debt issuances or repurchases and is net of interest income on financial assets.

Although if they cannot sell in the appropriate (if they have to sell at discount), they will incur in this cost of capital;

3) What is the weighted average cost of capital and why is it important to estimate it? Is the

• Propose an approach for how profitable decisions can be made by using cost of capital consideration within the corporate environment.

As is the case with any decision that involves a material investment of capital in a business, the investment must be carefully analyzed to ensure that the benefits to be derived from such an investment exceed the expected expenses in running such an expense. Capital budgeting is the process of analyzing the value that any investment will yield to the company. One of the major reasons why capital budgeting is important is because the investments involve a large cash outlay and once investment has been made the projects may not be brought to a stoop without incurring a loss to the company. In order to arrive at the best decision, all factors should be considered before

The understanding of capital and capital budgeting is important for companies to grow and expand.

These two cases present the capital investment decisions under consideration by executives of a large chemicals firm in January 2001. The A case (case 20) presents a go/no-go project evaluation regarding improvements to a polypropylene production plant. The B case (case 21) reviews the same project but from one level higher, where the executive faces an either/or investment decision between two mutually exclusive projects. The objective of the two cases is to expose students to a wide range of capital budgeting issues:

The company uses a cost of capital of 10% to evaluate all its projects. For calculation purposes assume that all cash outflows occur at the beginning of the year, where as all the cash inflows are expected to occur at the end of the respective year.

Capital budgeting is the process of regulating the possibility of a project to take an extended period investment on purchase or replacement of property plant and equipment, new product line or other projects. Capital Budgeting is an important tool, which helps financial managers to select investments with adequate cash flows and rate of returns. The financial manager can use different techniques of capital budgeting such as Net Present Value, Adjusted Present Value and two other business valuation models that are popular, Payback Period and Accounting Rate of Return. All these techniques are on the comparison of cash inflows and outflow of a project. However, they are considerably different in their approach.

Capital can be in the form of cash, property ownership, or equipment. Anything that is “capital” can be used as collateral for loans and also represents the wealth of a company.

In this essay I will look at the various sources of information that capital providers use in making investment decisions, as well as, the analytical techniques used to make sense of this information.