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nIf managers are investing shareholders' funds, shareholders will expect to earn their required rate of return
nFor internal equity, the required rates of return are equivalent to the cost as no issue costs are involved
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What happens when the cost of capital increases?
The market value of a firm's equity increases, the cost of capital decreases.
Why does the weighted average cost of capital of firms that uses more debt capital lower that that of a firm that uses less debt capital?
Because the cost of debt is generally lower than the cost of equity. This is because in case of financial distress, debt-holders are repaid before the equity holders are, as well as because debt has the assets of the firm as collateral and equity does not.
The extra cost associated with undertaking some action is its?
Marginal cost
What following states has a court of equity established more than 200 years ago that hears disputes over the internal affairs of corporations?
Delaware
Resource cost can be associated with labor cost or material consumable resources?
Variable costs not Resource
Internal failure cost?
Internal failure cost are quality costs that are associated with defects that have been discovered before delivery to customers. This internal failure cost is detected through inspection and appraisal activities.
What is the Difference between External Failure Costs and internal failure costs?
External failure cost is the cost incurred to fix the defects given by customer. Internal failure cost is the cost associated with internal verification activities like fixing the review comments or fixing the internal testing bugs.
What is the formula for external equity?
The cost of internal equity (using the dividend discount model) iske = (D1/P0) + gThe cost of external What_is_the_formula_for_external_equityis just like the formula for internal equity (retained earnings) except that you base it on the net proceeds after flotation costs rather than the market value of the stock.ke' = (D1/Pnet) + gBecause Pnet will be somewhat lower than P0 (because of the flotation costs), ke' will be higher than ke.
Is pretax cost of equity higher or lower than after tax cost of equity?
they are equal
What is the forula for valuation from income basis?
Equity Charge = Equity Capital x Cost of Equity is the formula.
The cost of external equity is greater than the cost of retained earnings because a. floatation costs on new equity b. capital gains tax on new equity c. interest expense d. risk premium?
The cost of external equity is higher because the floatation costs on new equity.
Deferance between Cost of equity and cost of capital?
cost of equity denotes by "Ke" and cost of capital denotes by "Ko". Cost of Equity:- it is the expectation an investor has from his investment. it is actually the desire of investor. Cost of Debt:- it is the cost for the debt which we have raise for business . It is calculated at after tax cost as like interest is allowable in income tax.
How do you solve this finance problem on WACC?
To calculate the Weighted Average Cost of Capital (WACC), you need to determine the weight of each source of capital (equity and debt) in the company's capital structure. Multiply the weight of equity by the cost of equity, and multiply the weight of debt by the cost of debt (adjusted for taxes). Add these results to get the WACC. The formula for WACC is: WACC = (E/V) * Re + (D/V) * Rd * (1 - Tax Rate), where E is equity, V is the total value of the company, Re is the cost of equity, D is debt, Rd is the cost of debt, and Tax Rate is the corporate tax rate.
How do you calculate cost of equity when you only know total equity and PE ratio?
can't
Cost and benefits of debt financing and equity financing?
benefit of debt and equity financing
If you have the debt assets after taxes percent of 10 percent cost of debt 8 percent and cost of equity 12 percent how is cost of capital calcuated?
WACC = Cost of Debt * Weight of Debt = + Cost of equity * Weight of Equity WAAC = .08*.10 + .12*.90 WAAC = 10.88%
Does one usually take out all of the equity before selling?
There is no need. You will get the equity in the home at closing anyway, without having to pay the closing costs associated with an equity loan.
