StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Corporate Finance and cost of capital - Assignment Example

Comments (0) Cite this document
Summary
If Norris policy is to increase the required return on a riskier-than-average project to 3% over risk free rate, then it should reject the project.
Answer: If a firm has been suffering accounting…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER95.3% of users find it useful
Corporate Finance and cost of capital
Read TextPreview

Extract of sample "Corporate Finance and cost of capital"

Financial Management 534 Quiz 5
Question 1
Answer: Put option.
Question 3
Answer: Options time to maturity.
Question 6
Answer: $1,989.75
Question 7
Answer: The life of the option is increased, that is, the time until it expires is lengthened.
Question 17
Answer: The accept/reject decision depends on the firms risk-adjustment policy. If Norris policy is to increase the required return on a riskier-than-average project to 3% over risk free rate, then it should reject the project.
Question 21
Answer: Division A project with an 11% return.
Question 24
Answer: If a firm has been suffering accounting losses that are expected to continue into the foreseeable future, and therefore its tax rate is zero, then it is possible for the after-tax cost of preferred stock to be less than the after-tax cost of debt.
Question 25
Answer: Since M and W move counter cyclically to one another, if they merged, the merged firms WACC would be less than the simple average of the two firms WACCs (Easley and O’Hara 1570).
Question 26
Answer: The cost of capital used to evaluate a project should be the cost of the specific type of financing used to fund that project, that is, it is the after-tax cost of debt if debt is to be used to finance the project or the cost of equity if the project will be financed with equity (Amihud and Mendelson 24)
Question 28
Answer: Accept too many low-risk projects and too few high-risk projects.
Question 29
The correct statement is: Cost should be assigned to retained earnings due to the opportunity
 
Work Cited
Amihud, Yolk, and Harris Mendelson. “The liquidity route to a lower cost of capital.”
Journal of Applied Corporate Finance 12.7 (2000): 5–25. Print.
Easley, Douglas, and Mellen O’Hara. “Information and the Cost of Capital.” The Journal of Finance 59.4 (2004): 1553-1583. Print. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Corporate Finance and cost of capital Assignment”, n.d.)
Corporate Finance and cost of capital Assignment. Retrieved from https://studentshare.org/management/1598412-corporate-finance-and-cost-of-capital
(Corporate Finance and Cost of Capital Assignment)
Corporate Finance and Cost of Capital Assignment. https://studentshare.org/management/1598412-corporate-finance-and-cost-of-capital.
“Corporate Finance and Cost of Capital Assignment”, n.d. https://studentshare.org/management/1598412-corporate-finance-and-cost-of-capital.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Corporate Finance and cost of capital

International Cost of capital

...it for the purpose of knowing their current level of paying a cost of capital. With the help of weighted average of cost of capital, different projects can be evaluated and the most appropriate and lucrative profit would be ranked and selected with the help of weighted average of cost of capital. Since these are the most important benefits involving the use of weighted average of cost of capital for the international firms, large and big corporations prefer the use of weighted average of cost of capital. References 1. Megginson WL 1996,...
7 Pages(1750 words)Assignment

Cost of Capital

...complements each other’s capabilities in terms of investment opportunities and cash flows. A firm with low investment opportunities can maintain high cash flows, while on the other hand a firm can have more investment opportunities than the level of cash available for investments. According to Ray (2010), the merged firm “can lower the cost of capital due to the low cost of internal funds resulting from lowering risk, savings in floating cost and improving capital allocation” (Ray, 2010, p.338). Thus, financial competency can occur from reducing of cost of internal financing in relation to the external...
38 Pages(9500 words)Dissertation

Corporate Finance: Traditional Capital Budgeting

...? Corporate Finance: Traditional Capital Budgeting Corporate Finance: Traditional Capital Budgeting Introduction Capital Budgeting is the process of planning of long term corporate project related to the investment decision of the organization. The main objective of Capital Budgeting is to allocate firm’s limited resources between competing opportunities (Harrison & John 2010). Management use various Capital budgeting techniques to make effective use of these resource to maximize firm’s value (Bennouna, Geoffrey & Marchant 2010). The key objective of an organization is to determine the investment required for expansion of the project, modernize the existing equipment to reduce the costs or to anticipate demand (Bennouna, Geoffrey... in...
6 Pages(1500 words)Essay

CORPORATE FINANCE

...Corporate Capital Structure Introduction The concept of corporate capital structure and cost of capital occupy an important position in modern corporate finance. Considerable controversy has surrounded the question of whether using debt to create financial leverage can affect the average cost of capital and the total value of the firm. However empirical evidence remains inconclusive. a) The Traditional View of Capital Structure: Supporting Arguments In financial theory, disagreement exists with respect to the effect of capital structure...
6 Pages(1500 words)Essay

MBA - Corporate Finance - Capital Budgeting - 6 question

...Running Head: CAPITAL BUDGETING Capital Budgeting in APA Style by SUMMARY ANSWER SHEET Number a. Computed NPV = $4, 345.83 and Profitability Index = 1.11 b. IRR= 17.28%; MIRR= 16.04% c. The project should be accepted because it satisfies all the criteria as shown by the results of the computation. Based on above, the NPV is positive which also implies a positive profitability index. Also, since the project is expected to generate higher values that cost of capital both IRR and MIRR are higher than the required rate of return of 14%. Number 2. a. NPV IRR MIRR Project A $22,256.09 30% 20.18% Project B $36,862.47 25% 17.82% b. With no capital rationing,...
6 Pages(1500 words)Essay

CORPORATE FINANCE CASE ASSIGNMEN 3 Risk and return, portfolio diversification and the Capital Asset Pricing Model; The cost of equity

... XXXXXXXX Number: XXXXXXX XXXXXXX XXXXXX of XXXXXXX Corporate Finance Case Assignment 3: RiskAnd Return, Portfolio Diversification And The Capital Asset Pricing Model; The Cost Of Equity The company chosen for this SLP is Federal Express. This report aims at discussing the best model that can be used by the company. The paper will discuss the three models, i.e. CAPM, Dividend Growth and APT. The basic thought process behind the investment decisions revolves around the profit gained by owning a large or small share of a corporation or other businesses. The investment decision is really a two-pronged question: ‘What is the Potential Income?’ and ‘How risky is the venture?’ (Silbiger). High returns are not the only deciding factor... ).The CAPM...
5 Pages(1250 words)Essay

Cost of Capital

...Cost of Capital Introduction The increasing patient expectations, technological advancement and innovative care models are rapidly changing health facilities and health care services. A major challenge in designing large-scale investment projects in healthcare is the long-term period involved in planning, financing and implementing new projects. With the current economic conditions, raising capital to fund hospital projects is a great challenge. The current paper underpins the advantages and disadvantages of investing in bonds to raise capital for the hospital and for investors. Further, the paper determines if bonds offer investors an advantage over...
2 Pages(500 words)Essay

DiscussionAnalyzing Cost of Capital

...Analyzing Cost of Capital The cost of capital is the price the company pays to obtain and retail finance. The major decision for company as concern capital structure is to determine the ideal amount to use for debt and equity in order to attain a perfect capital structure, and consequently minimize the cost of capital. The company needs to determine the best proportion of equity and debt that will keep the cost of capital at minimum, and which can be effectively managed by the firm. The overall cost of capital is...
1 Pages(250 words)Essay

Cost of Capital

...Cost of Capital s Cost of Capital The cost of capital is described by Rosenbaum and Pearl (2009) as the cost of a firm’s funds, both equity and debt. In other words, the cost of capital is the cost of utilizing owners’ or creditors’ funds. The cost of capital relies on the mode of financing that has been used. The cost of capital is often used to evaluate a company’s new projects. This implies that it is the minimum return expected by the investors for offering capital to...
1 Pages(250 words)Coursework

Corporate Finance Theory and Transaction Cost Theory

...Corporate Finance Theory and Transaction Cost Theory Goal of Corporate FinanceCorporate finance, as the name suggests, concerns itself with the monetary decisions that are made by different business organizations and includes the analysis and tools utilized for making the decision. The main objective of the Corporate Finance theory is to maximize the shareholders’ wealth and to achieve the same, it is necessary to maximize the value of the firm. In this regard, three decisions are mainly to be taken by the companies; these are, investment decision, financing decision...
7 Pages(1750 words)Research Paper
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Assignment on topic Corporate Finance and cost of capital for FREE!

Contact Us