issue with NPV is that the discount rate has to be determined. The discount rate is typically the firm's cost of capital. The cost of capital is normally considered to be the weighted average of its cost of debt and its cost of equity. This is the calculation that will be used here as well. The cost of capital is then used to discount the future cash flows. The reason is simply that this is the rate the firm theoretically earns on its asset base, so any future project should earn more than that.
A wildcard in this example is the impact of foreign exchange, since South Coast will… Continue Reading...
6.59%
Slide 4:
Taking the cost of debt and cost of equity together, the weighted average cost of capital can then be calculated:
WACC = (.739)(3.625) + (.261)(6.59) = 2.68 + 1.72 = 4.4%
Slide 5:
There are a couple of challenges in arriving at this. The first is finding the cost of debt. That would be easy if the company had a recent issue, but the most recent was one year ago. Further, you have to choose which time frame is most appropriate to examine. Ten year seems reasonable, but it may be more pragmatic to look at the duration of the debt and align… Continue Reading...
pay that tax, it is still affected by it, because it means that equity capital has a higher cost of capital than debt. When weighing capital structure decisions, cost of debt is one of the considerations that senior management needs to take into account, because a higher cost of capital essentially demands that the company earn higher returns. This makes sense for a company on a positive growth trajectory, but has its own challenges should the company no longer be growing.
If the company chooses debt, however, it must make the repayments on schedule, and that includes the interest payments. Debt may have a lower cost to it… Continue Reading...
of the NPV of a project must incorporate computing the project’s future net cash flows, discounting these at the appropriate cost of capital to attain their present value, subtracting the initial capital cost or net investment expenditure, at the project commencing period. The NPV makes the assumption that cash inflows will be invested back at the similar rate that is the necessary rate of return or the rate at which cash inflows are discounted (Drury, 2004). NPV has a number of features which meet the requirements of making it be deemed as the best method. These take into account that NPV measures profitability of a corporation and can facilitate the… Continue Reading...
percentage of debt to capital (Parrino, 2011). This approach benefits the company because it allows them to lower their overall cost of capital thus increasing their return on shareholder's equity. Coke's debt management strategies, in combination with their share purchase policies and an investment activity results in current liabilities surpassing current assets. Payments… Continue Reading...
2017). Greater governmental borrowing for funding the above growth similarly affects resource availability for other undertakings. With interest rates mounting on account of governmental borrowings, families’ and organizations’ cost of capital grows as well. This serves to crowd out outlays in other activities.
Lastly, greater expenditure typically leads to growth in intergenerational wealth transfer from the population’s youth to older clusters.
International competitiveness of American goods
Technically, increased healthcare expenditure decreases American services’/goods’ competitiveness within global markets. Not varying any other element, growth in healthcare expenditure must be reflected by the cost of end product. Considering the swift rise in healthcare expenses within other nations, this may lead to comparatively costlier services and goods (Graham, 2016). But acquiring… Continue Reading...
