In Shares and bonds we have risk and return involved. Greater the risk involved higher the return will be. Usually stock holders who are the owners of company have greater risk than bond holders. This is what we seen in risk and return. A single security is having greater risk than mix of securities (Portfolio). So securities should be purchased market risk and return involved in that.
Now company has to decide what to do with that money which they obtained through bonds and stocks. So purchasing of FA (capital investment) and allocating money in various projects is seen in Capital Budgeting. Here we need to consider current value of future cash flows by involving money in a project. We seen NPV, IRR, payback period and benefit cash ratio.
Choosing a project based on our capital component (equity & debt) is done using WACC. It needs to be low for a company and project above this hurdle rate can be selected which is WMCC. Company which rises fund is leveraged firm. In Capital restructuring... [continues]
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