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determine the financial structure of business riskfinancial structure shifts toward suppliers of funds recognize a more highly levered position
what is financial riskfinancial risk is affected by mixture of long-term financing or capital structure of firm firms with high levels of long-term
definition of cost of capitalin analyzing the cost of capital it is presumed that business risk of the firm remains unchanged ie that projects
what is business riskit is related to response of the firms earnings before taxes andinterest or operating profits to changes in sales when cost of
risk of cost of capitala straightforward assumption of traditional cost of capital analysis is that firms business and financial risk are unaffected
define the term- cost of capitalcost of capital is the rate of return a firm should earn on its investments for the market value of the firm to
explain the implicit cost of capital implicit cost of capital can be defined as the rate of return associated with the best investment opportunity
define the explicit cost of capitalexplicit cost of retained earnings that involve no future flows to or from firm is minus 100 per cent this must
determine the advantages of explicit costexplicit cost of an interest bearing debt will be the discount rate which equates present value of the
examine the difference between explicit cost and implicit costcost of capital can be either implicit cost or explicit explicit cost of any source of
what is marginal cost of capitalmarginal cost of capital by contrast refers to incrementalcost associated with new funds raised by firmmarginal cost
state what is average costaverage cost represents weighted average of the costs of each source of fundsemployed by enterprise weights being the
for capital budgeting decision which cost is relevantfor capital budgeting decision composite cost of capital is comparatively more relevant albeit
determine the term- component cost and composite costa company may contemplate to raise desired amount of funds by different sources comprising
define the term- future cost and historical costfuture cost of capital refers to expected cost of funds to be raised to finance a project in contrast
explain in detail about the cost of capitalevery type of capital used by the firm preference shares debt and equity must be incorporated into the
what is cost of capitalcost of capital is the rate which should be earned in order to satisfy required rate of return of the firms investors it may
determine net present value according to ezra solomonthe gross present worth of a course of action is equal to the capitalised value of the flow of
state about the net present value net present value maximisation is superior to the profits maximisation as an operational objective as a decision
describe the value maximisation criterionin applying the value maximisation criterion term value is used in terms of worth to the owners which is
explain the significant feature of the wealth maximisationthe significant feature of the wealth maximisation criterion is that it considers is that
describe the benefits of wealth maximisation criterionvalue of an asset must be viewed in terms of the benefits it can produce worth of a course of
wealth maximisation decision criterionthis is also called as value maximisation or net present worth maximisation presently academic literature value
profit maximisation criterion profit maximisation criterion is unsuitable and inappropriate as an operational objective of financing investment and
limitation of profit maximisation -quality of benefitsprobably the most vital technical limitation of profit maximisation as an operational objective