Cost of Capital

Cost of Capital The cost of capital refers to the cost incurred by a company to acquire finance, i.e. both debt and equity. From an investor’s perspective, it is the required return on all the company’s assets (Sharpe 367).Advertising We will write a custom assessment sample on Cost of Capital specifically for you for only $16.05 $11/page Learn More The cost of capital is used to assess the acceptability of projects since it is the least return that shareholders expect to receive in order to provide capital to a company. Calculating the Cost of Capital A firm’s overall cost of capital comprises of the cost of debt and the cost of equity. The cost of debt is easier to calculate than the cost of equity, reason being that its calculation is based on interest payments to investors (Pearl 290). In contrast, equity investors do not receive fixed payments, making determination of the cost of equity more difficult. Determining the Cost of Debt To calculate the cost of debt, one has to first establish the interest rate being paid on a risk-free bond e.g. Treasury bill, with the same maturity as the company’s debt. A default premium is then added to this risk-free rate to determine the cost of debt (Yee 454). The cost of debt is determined as an after tax cost as most interest payments on corporate debt are tax deductible. The precise formula for calculating the cost of debt is as follows: Kd = (Rf + credit risk rate) (1-T) Where,Advertising Looking for assessment on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Kd = Cost of debt Rf = Risk-free rate T= Corporate tax rate Calculating the Cost of Equity The cost of equity is determined using the following formula: Ke = Rf + ÃŽ ²s (Rm – Rf) Where, Ke = Cost of equityAdvertising We will write a custom assessment sample on Cost of Capital specifically for you for only $16.05 $11/page Learn M ore ÃŽ ²s = Company’s beta Rm = Return on market portfolio The company’s beta indicates the sensitivity of returns on the firm’s security to changes in returns on the market portfolio, which refers the portfolio of all securities available in the stock market (Modigliani 261). Moreover, return on the market portfolio refers to the average historical return on the whole set of securities existing in a stock market, over a given time-period. The overall Cost of Capital The total cost of capital is the weighted average of the cost of debt and the cost of equity. This can be expressed as follows: Ko = Wd Kd + We Ke Where, Ko = Total cost of capitalAdvertising Looking for assessment on business economics? Let's see if we can help you! Get your first paper with 15% OFF Learn More Wd = proportion of debt in a firm’s capital structure We = Proportion of equity in a firm’s capital structure. The Effect of Market Interest Rates and Perceived Market Risk on the Cost of Capital When the market interest rates are high, the cost of capital will also be high since high interest rates point out to higher required rate of return by investors. The converse is true. Similarly, increase in perceived marked risk leads to higher cost of capital as investor raise the required rate of return to take care of the increase in the default risk of companies (Sharpe 370). The opposite situation is true as lower perceived market risk leads to lower cost of capital. Market risk refers to systematic or economy-wide risk that cannot be diversified, for instance, recession. Market risk is measured based on the historical returns on the market portfolio. Standard Deviation and Coefficient of Variation The standard deviation measures the dispersion between returns on a compa ny’s security and the returns on the market portfolio. It is used to indicate the level of risk on a security (Sharpe 326). The Coefficient of variation, on the other hand, indicates dispersion between a security and market portfolio returns in a standardized manner, i.e. instead of showing the average standard deviation, it is expressed as a ratio of standard deviation to the average returns on a stock. This measure is very useful when comparing the risks of various stocks (Sharpe 330). My Opinion on Abel Athletics’ Current Cost of Capital If what the CFO says regarding Treasury raising debt at 7 percent is true, the company’s cost of capital must be above this figure. Therefore, the 6 per cent cost of capital as claimed is erroneous. Modigliani, Franco. The Cost of Capital, Corporation Finance and the Theory of Investment. New Jersey: Prentice Hall, 1998. Print Pearl, Joseph. Investment Banking: Valuation, Leveraged Buyouts, and Mergers Acquisitions. Hoboken , NJ: John Wiley Sons, 2009. Print Sharpe, William. Investments. New Delhi: Pearson Education Publishers, 2010. Print Yee, Kenton. Aggregation, Dividend Irrelevancy, and Earnings-Value Relations. New York: Addison-Wesley, 2000. Print

Comparison Essay Example | Topics and Well Written Essays - 1000 words - 4

Comparison - Essay Example However different the conditions are, they also share a few similarities. The similarities and differences come out only well after thorough analysis of the two conditions. A decision by a first year college student to either reside in campus or off-campus ends up having total transformation of his or her life (Morris, 2008, 77). It is inevitable that staying in campus hostel will influence the life of a college student and staying at home has its pros and cons. Living in campus hostels exerts a pleasant experience on one student and an awful ordeal for another. Living in the dormitory is a necessity for some people. The forms of advantages and benefits compared for the two living conditions relate to closeness in terms of accessing classes and campus, cost advantages, availability of affordable and nutritious food, additional benefits of education to the student, as well as available opportunities for student to involve in such as entertainment and co-curricular activities. Living off-campus means that a student will commute to campus because he or she lives in an apartment, a fraternity, or a sorority. Living off-campus lacks the advantage of proximity to campus and classes. It would require some of the student who do not live in campus hostels to travel long tiring distances every morning to get to class and have to wake up early enough to catch up with early classes and in some cases avoid traffic jams on the way to college. Those who already live in college hostels do not have these problems. The situation presents a problem to students especially in times of winter. During this season students do not like waking up therefore, skiving classes becomes a common occurrence. Beds become far more inviting during winter compared to the journey to class. The cost of living outside for instance, in an apartment can be very high. In some regions

Application of Organizational Behavior Concepts Research Paper

Application of Organizational Behavior Concepts - Research Paper Example Job enrichment concept refers to the variant ways that an organization applies to enhance its productivity by increasing employee’s job motivation, self-worth, and satisfaction. Regardless of the scope, operations, size, type, and ownership, of an organization, the adoption of the job enrichment concept fosters employee production and worker motivation. However, many organizations do not apply job enrichment concept in their management and hence the employees are constantly dissatisfied thus leading to employee turnover. Indeed, very few organizations have the ability to attract and retain trained and qualified employees. This leads to significant monetary loses and affects employee morale, customer relationships, the effectiveness of other employees, and leads to job injuries and theft. In fact, high employee turnover lowers the public trust and the goodwill of an organization. Therefore, it is the prerogative of any human resource manager to reduce employee turnover in a ref erence organization for purposes of reducing accrued losses and low productivity. As such, the Human resource is responsible for compensation and benefits, and advanced opportunities, job satisfaction, and retention of a highly effective workforce.   In conclusion, the paper will propose possible solutions to the issues leading to a higher employee turnover at Healthcare Inc. Identifying the Causes of High Turnover at Healthcare Inc In ascertaining the causes of high employee turnover at Healthcare Inc., one should know that if an organization has lost more than 20% of the staff within five years, then that qualifies to be high turnover. One should then observe on where improvements are necessary for the workforce, and conduct interviews on the employee satisfaction. One should consider whether the organization offers a desirable work environment, whether there is appropriate assigning and performance of tasks, whether there is an effective way of communication, whether employees support one another, and whether there are appropriate recruitment and training of employees. Motivational issues, recruitment and employee selection issues, and leadership issues dominate the list of causes of high turnover at Healthcare Inc. (Capko, 2001). Recruitment, Employee Selection Issues and Job Enrichment Concept The employee turnover has a direct correlation with the recruitment and employee selection issues. Recruitment refers to an affirmative process where many candidates apply for the same job while selection involves the discarding of the unqualified candidates (Smith and Lister, 2008). Hence, recruitment precedes selection. The employee selection process involves the hiring of qualified workers for the right job (Collins, 2007). In doing this, the management links the organizational requirements with the skills and qualifications of potential workers. This leads to the quality performance of the employees and low employee turnover. However, where selection happens i n a fraudulent manner, employee turnover is inevitable.

Composed Upon Westminister Bridge Essay Example for Free

Composed Upon Westminister Bridge Essay This poem is all about the poets epiphany-like realisation about London’s beauty while crossing Westminster bridge. He opens the poem with a hyperbole, designed to grab the attention of the reader. He continues this with almost an accusation: â€Å"Dull would he be of soul who could pass by†. This is basically challenging the reader to read on, as he or she would be ‘dull of soul’. In the next line, the word â€Å"now† shows that it is not just this place, but this time that adds to the atmosphere. This is supported where Wordsworth describes the beauty of the morning as a garment that the city wears. This shows that the city is not always this beautiful, but with the morning being ‘worn’ it is. The next two lines show that the beauty is added to both by human creations and by nature, in a serene confluence that astounds Wordsworth. The volta (transition between octave and sestet) is subtle, but the sestet starts with another hyperbolic statement: â€Å"Never did sun more beautifully steep†. In the third line of the sestet, he describes that the atmosphere is making him feel â€Å"a calm so deep†. This is counter-intuitive, as London is a busy, bustling, and hectic place. The fact that it is calm emphasises that it is the time more than the place which creates the feeling. In the fourth line, Wordsworth writes â€Å"the river glideth at his own sweet will†. The word ‘glide’ implies that the river is taking its time- it is in no rush. Also, he uses of the word â€Å"glideth† instead of ‘glide’ because the ‘-th’ sound is softer then the ‘-s’ sound, adding to the mood of calm. The poet ends saying that the city is so unusually calm and quiet, and that at this time all of the energy and madness of city life is not yet there- and he loves it.

Queen Elizabeth I :: essays research papers

Queen Elizabeth I was said to be one of the best rulers of England. Unlike rulers before her, she was a Protestant and not a Catholic. She was not stupid though. She did go to church and did everything that Catholics did to prevent getting her head cut off under the rules of her sister Mary. Elizabeth was very young when she came to rule. She was only 17 years old when her sister Mary died and she took over. Elizabeth’s relationship with her half sister Queen Mary was mediocre. It seemed like they did not talk as much as some sisters do. They did love each other though because when Queen Mary was on the deathbed she refused to sign the paper that would have Elizabeth killed. If she didn’t really love her sister, she would have let them kill her and allow the Duke of Norfolk to take over as king. The Duke of Norfolk was Elizabeth’s cousin and wished to be king more than anything else. On the other hand, Mary called her sister a bastard and other bad names. Elizabeth and her cousin Mary Queen of Scots often clashed, both personally and politically. Eventually, they wanted one another dead. Mary Queen of Scots wanted to be the queen of England and was ready to attack them. French forces increased their numbers, without planning to attack England. However, Elizabeth was worried and decided to attack. She sent her weak army up to Scotland and was easily defeated. Mary laughed in her face and sent back one of her men wearing the French colors. Later on Elizabeth sent an assassin to kill her and it was successful. Mary Queen of Scots was killed. Elizabeth’s relationship with her elder male cousin, the Duke of Norfolk, was not good at all. The Duke of Norfolk wanted to kill Elizabeth because he wanted to become the king of England. Becoming the king of England was impossible while Elizabeth was still the queen. When Mary was on her deathbed with cancer the Duke of Norfolk tried to get Mary to sign a paper that would allow him to kill Elizabeth and become King of England. The Duke of Norfolk would speak against Queen Elizabeth and try to turn England against her. At one meeting she had to lock him and his men up so he wouldn’t cause a disturbance. They both had their differences.

Lord of the Flies: Human Nature

Lord of the Flies Human Nature In the novel, Lord of the Flies, Golding has young and innocent children on a remote island to test how human nature works. Golding uses objects such as the conch and the Beast to reflect our society politically and psychologically. The novel shows human’s own illness and human nature. Human nature is unavoidable and can be a source of evil. It is one’s nature to do whatever it takes in order to survive. By trying to survive one’s evil creeps out. Jack and his hunters showed the most evil. The first pig being killed was the first sign of evil. They celebrated the killings and became blood thirsty for hunting. It was human nature for the hunters and the little boys to follow Jack and to try to survive on the island. Evil is an inborn trait that lives inside every one. It is our parents’ job to teach good morals and values when we are young, but evil can not be fully covered up. The children enjoyed the freedom away from rules and adults. As time passes on the island their freedom soon turns into a nightmare and in the end some died. Civilization is not so far from savagery and everyone has some kind of evil lurking about. Even the little innocent British boys have a certain amount of evil in themselves. The kids are used to rules, but they soon realize that rules do not matter anymore. They can not be punished for throwing rocks or pushing a boulder and killing someone. Roger can not get into trouble by adults anymore, so his human nature kicks in and he reveals his evilness. He was able to kill without getting into trouble. The Beast is messing with the kids’ minds and they become crazed little boys. The fear makes them turn into savages and kill to survive. The Beast is like a phobia for the littluns. Beast from the Air arrives and stirs up some more trouble. It confuses them because they realize there are more things to be cautious of. The conch was supposed to be good, but the power of it changes the kids. Jack and Ralph fight about who has the conch and who is the leader. It is human nature for Jack to desire the conch and what is not his. Human nature has a big role in Lord of the Flies and many of the kids can not handle it. Once human nature was revealed many turned into little killers. It was human nature to try to survive and many did live at the end, but at the cost of lives.

Top Highest Pay Jobs For Information Technology Grads Essay

Jaime: 10 Highest-Paying Jobs for Information Technology Grads According to the Bureau of Labor Statistics (BLS), employment opportunities in the information technology field have been continually expanding for the last 20 years. The BLS stages that the fasted growing and highest paying information technology jobs include computer programmers, systems analysts, software developers and support specialists. The field of information technology offers the best career flexibility, so graduates may find themselves working in jobs related to business, science, market research, media communications and health care. Below introduces the top 10 highest pay jobs for graduates who have an information technology related degree. https://www.bls.gov/opub/btn/volume-2/careers-in-growing-field-of-information-technology-services.htm 1. Computer Programmer Computer programmers write efficient code that follows defined standards and naming conventions. They develop software that is designed to user specifications and departmental requirements. Computer programmers conduct research, collect data, analyze tests and implement updates. They interpret data and reports to aid in research activities and project completion. Computer programmers conduct comprehensive tests during every stage of the product cycle. They work with other teams and attend client meetings to obtain necessary information and share relevant findings. Computer programmers may modify existing software to meet new clientShow MoreRelatedThe Roi On The Mba856 Words   |  4 PagesThe ROI on the MBA According to the most current information available, the Graduate Management Admission Councils The 2003 Global MBA Graduate Study median full-time MBA students earned 50,000 pre-degree. Upon completion, the same graduate expected to earn $75,000, excluding bonuses; a 50% bump in salary. 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