Search Results: 'Cost of Capital'
Cost of Capital Tutorial
The goal of this tutorial is to give the reader a thorough understanding of one of the most important, and least understood, concepts in corporate finance - the cost of capital. While the cost of... More > capital can be considered a fundamental building block of corporate finance, it is frequently ignored by many companies as they go about their day to day operations. However, by ignoring the cost of capital, companies run the risk of misallocating capital and therefore destroying rather than creating shareholder value. This tutorial will give the reader the tools necessary to determine what debt and equity capital costs so that a proper comparison can be made between a company’s cost of capital, and the return a company is actually earning on invested capital.< Less
The Capital Cost Of Risk
As risk is increased, the cost of capital can be expected to increase. An extensively used method of adjusting the cost of capital for risk is to use the capital asset pricing model (CAPM). The CAPM... More > makes use of the prices that the market is setting for return-risk trade-offs rather than using subjective measures of attitudes toward risk.< Less
Capital Budgeting Maintenance Costs
"Beryl's Iced Tea currently rents a bottling machine for $50,000 per year, including all maintenance expenses. It is considering purchasing a machine instead, and is comparing two options:
a) ... More > Purchase the machine it is currently renting for $150,000. This machine will require $20,000 per year in ongoing maintenance expenses.
b) Purchase a new, more advanced machine for $250,000. This machine will require $15,000 per year in ongoing maintenance expenses and will lower bottling costs by $10,000 per year. Also, $35,000 will be spent up front in training the new operators of the machine.
Calculation of Capitalized cost of a new stadium
"Find the capitalized cost of a new stadium that is expected to cost $700 million to construct, with annual maintenance costs of $15 million, and refurbishing costs of $175 million every 15... More > years.
Use a MARR of 6%.
Calculation of weighted average cost of capital
"a. Calculate the firm’s weighted average cost of capital using book value weights.
b. Explain how the firm can use the cost in the investment decision-making process.
Capital Budgeting Present Value of Costs
Acme Corporation is considering purchasing personal computers. It can either buy from Apple or IBM. The Apple computer costs $1,200 and is expected to last for five years. Annual maintenance costs... More > are $200 per year, paid at year’s end. The machines are expected to have no salvage value. The IBM computer costs $1,800 and is expected to last six years and has annual maintenance costs of $250. It is expected to have a salvage value of $300. The firm estimates its workload is such that it should either buy 400 Apple computers or 300 IBM computers. There is expected to be no technological progress. Acme uses straight-line depreciation. Both maintenance costs and depreciation are tax-deductible. Its tax rate is 40%. Its discount rate for this type of investment is 8%. Should the firm buy its computers from Apple or IBM?< Less
On Capital Punishment
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A few pages packing a powerful wallop. The author zeroes-in on the root problem, the force that supports the unending controversy over capital punishment. The enormous cost of maintaining this... More > aboriginal depravity is enormous and the force that keeps it going is money, especially those who make money from killing people indirectly. These few pages are dynamite!< Less
Setting a budget is never easy as it involves predicting the future and therefore uncertainty. The process is not about getting the budget absolutely right; it is about not getting it too wrong. This... More > budget process may be applied to most revenue budgets that deal with income and costs, but there is also a requirement to produce a capital budget that covers the purchase, sale and replacement of fixed assets.< Less
Health and Capital
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HARDCOVER EDITION: Health and Capital begins as an empiric review of the present health system’s moral and economic costs, the scale and accelerating growth of which are linked to their... More > structural origins. The tendency of both free and planned markets to fail in health settings is shown through examples; as, more constructively, is the existence of a continuum of workable alternatives bounded by these extremes. Recommendations are provided in two forms: loosely, as a list of essential reforms that logically must feature in any health system having moral and economic efficiency, whatever it’s broader structure and finer details; and more completely, as a comprehensive health system design that demonstrates the feasibility of effective reforms.
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