EBS Plc, an all equity-financed firm, has three strategic business units. The polythene division has capital of £8m and is expected to produce annual returns of 11% for the next five years. Thereafter it will produce annual returns equal to the required rate of return for this risk level of 14%. The paper division has an investment level of £12m and a planning horizon of 10 years. During the planning horizon it will produce a return of 22% compared with a risk-adjusted required rate of return of 15%. The cotton division uses £2m of capital, has a planning horizon of seven years and a required rate of return of 16% compared with the anticipated actual rate of 17% over the first seven years. I. Calculate the value of the firm. II. Draw a value-creation and performance spread chart. III. Discuss the advantages and disadvantages in using the Total Shareholder Return (TSR) and Wealth Added Index (WAI) to judge managerial performance
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
EBS Plc, an all equity-financed firm, has three strategic business units. The polythene division has capital of £8m and is expected to produce annual returns of 11% for the next five years. Thereafter it will produce annual returns equal to the required
division uses £2m of capital, has a planning horizon of seven years and a required rate of return of 16% compared with the anticipated actual rate of 17% over the first seven years.
I. Calculate the value of the firm.
II. Draw a value-creation and performance spread chart.
III. Discuss the advantages and disadvantages in using the Total Shareholder Return (TSR) and Wealth Added Index (WAI) to judge managerial performance.
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