Cost of Capital Firms need to make capital investment i.e.‚ purchasing fixed assets such as factories‚ machineries‚ equipment‚ etc. After deciding what capital investments to make‚ they need to decide on the financing – sources of capital. The sources: Long-Term Debt‚ Common Stock‚ Preferred Stock and Retained Earnings. Then they need to find the cost of obtaining each source of financing today (not historical). Cost of Capital - The rate of return that a firm must earn on its investment
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‘Wall Street’ flawed‚ but don’t sell Gekko short “They love that quality of take no prisoners ... if I have one more person‚ it’s so depressing and sad‚ they come up to me and say‚ you know‚ you’re the reason that I got into Wall Street ... that’s a‚ that’s a sad commentary.” —Michael Douglas There is a fabulous irony to “Wall Street” that perhaps can’t be adequately explained. The movie is an unequivocal denunciation of Wall Street excess but remains the preeminent film of those
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Sociological Essay: Movie Analysis‚ “Wall Street” The movie “Wall Street” is a classic movie and one of my personal favorites. It’s a fictional story with real world implications. The movie is about an up and coming junior stockbroker named Bud Fox who I doing whatever it takes to get to the top and make big money‚ like his hero and eventual mentor‚ Gordon Gekko. Gekko is a legendary player on Wall Street who’s values and intentions are never clear to anyone but himself‚ and he is always looking
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WSBl Summary Cliff Addis‚ the best bond salesperson on Wall Street who has never failed‚ persuaded his best customer‚ Louise Patterson‚ to buy the bonds of the company whose value diminished by 3% 2 days later. Trying to becalm Louise‚ Cliff lied saying that the bonds would turn round and he would gain profit. When Cliff came home‚ he read in a newspaper that the Wisconsin Credit bank is close to bankruptcy‚ but he perceived this message as “a golden investment opportunity”. Problem Mr.Addis
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What is cost of capital? The cost of capital is the cost of obtaining funds‚ through debt or equity‚ in order to finance an investment. It is used to evaluate new projects of a company‚ as it is the minimum return that investors expect for providing capital to the company‚ thus setting a benchmark that a new project has to meet. Importance The concept of cost of capital is a major standard for comparison used in finance decisions. Acceptance or rejection of an investment project depends on the
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CHAPTER 11: THE COST OF CAPITAL LEARNING GOALS: 1. Understand the key assumptions‚ the basic concept and the specific sources of capital associated with the cost of capital. 2. Determine the cost of long-term debt and the cost of preferred stock. 3. Calculate the cost of common stock equity and convert it into the cost of retained earnings and the cost of new issues of common stock. 4. Calculate the weighted average cost of capital (WACC) and discuss alternative weighing schemes
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"Black Wall Street" was the name given to Greenwood Avenue of North Tulsa‚ Oklahoma during the early 1900’s. Because of strict segregation‚ Blacks were only allowed to shop‚ spend‚ and live in a 35 square block area called the Greenwood district. The "circulation of Black dollars" only in the Black community produced a tremendously prosperous Black business district that was admired and envied by the whole country. Oklahoma’s first African-American settlers were Indian slaves of the so-called "Five
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Answers to Warm-Up Exercises E9-1. Answer: Weighted average cost of capital N 10‚ PV $20‚000 (1 0.02) $19‚600‚ PMT Solve for I 8.30% 0.08 $20‚000 $1‚600‚ FV $20‚000 E9-2. Cost of preferred stock Answer: The cost of preferred stock is the ratio of the preferred stock dividend to the firm’s net proceeds from the sale of the preferred stock. rp Dp Np rp (0.15 $35) ($35 $3) rp $5.25 $32 16.4% E9-3. Cost of common stock equity Answer: The cost of common stock equity can be found by dividing the dividend
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WEIGHTED AVERAGE COST OF CAPITAL FOR DELL COMPUTER 1) From the SEC website‚ the balance sheet of Dell Computer reveals a Book value of debt = $3‚394‚000‚000 and Book value of equity = $4‚625‚000‚000 The same balance shows the breakdown of the long-term debt (book values) in table 1. Table 1 Coupon Rate (%) Maturity Book Value (Face Value in million $) 3.38 06/15/2012 400 4.70 04/15/2013 599 5.63 04/15/2014 500 5.65 04/15/2018 499 5.88 06/15/2019 600 7.10 04/15/2028 396 6
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ON CHAPTER 15 (COST OF CAPITAL) 1.) The Wind Rider Company has just issued a dividend of $2.10 per share on its common stock. The company is expected to maintain a constant 7% growth rate on its dividends indefinitely. If the stock sells for $40 a share‚ what is the company’s cost of equity? 2.) The Ball Corporation’s common stock has a beta of 1.15. If the risk free rate is 5% and the expected return on the market is 12%‚ what is Ball Corp.’s cost of equity capital? 3.) Stock
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