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If a corporation has projects that will earn more than the cost of capital should it ration capital?
Wiki User
∙ 13y ago
Yes
Wiki User
∙ 13y ago
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What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects?
Profitability index criteria can be used to select projects when a capital rationing situation exists, with the highest profititibility index from specified projects being the goal.
Different stages of capital budgeting?
According to Cost Accounting - A Managerial Emphasis, Fourth Canadian Edition (Horngren et al): 1: Identification - Identify which types of capital expenditure projects are necessary to achieve the organization's goals, objectives, and strategies. 2: Search - Explore several different capital expenditure investment alternatives that have the capacity to achieve the organizational objectives and strategies. 3: Information-acquisition - Analyze the predicted costs and consequences of the alternative capital investments. Information should be both qualitative and quantitative. 4: Selection - Choose projects for implementation. If there are several suitable projects, this could require ranking projects in terms of priorities. A single project hurdle rate is chosen and used to discount the costs and benefits of the various projects, thereby allowing management to compare the projects. 5: Financing - Obtain project finances. Determine whether internal financing (cash flow from operations) or external financing (debt or equity) is necessary. In large organizations, this is the responsibility of the treasury department. 6: Implementation and control - Initiate selected projects and monitor performance. This should include making sure the project is on time and within budget, and should be followed up by a post-investment audit.
What is capital of small scale industry?
the minimum paid up capital of a small scale industry should be 5 lakh
What is an appropriate capital structure and What is a flexible capital structure?
Appropriate Capital structure refers to the most optimum way of finding a combination of debt and equity.Features of Appropriate capital structure are:Profitability Aspect: cost of capital is minimum and market price per share is maximum.Liquidity Aspect: The Capital structure should be composed in a way that the firm has enough of assets to cover its liabilities.Solvency Aspect: The composition of Capital structure should be in such a way that the firm doesn't run the rick of going bankrupt or Insolvent.Capacity/Conservation: The debt part of the Capital structure shouldn't exceed the debt limit which the company can't bear incase of untoward events.Control: Capital structure should involve minimum risk of loss of control over the company. The dilution of control should be mitigated.- R.Mele
For accounting purposes the business entity should be considered separate from its owners if the entity is a?
a corporation, proprietorship or a partnership.
How can you start corporation and how much capital you need to start a corporation?
it will depend on the capital you have but should be some thing big
Do you believe that a firm should use the same cost of capital for all of its projects?
no
What decision criteria should managers use in selecting projects when there is not enough capital to invest in all available positive NPV projects?
Profitability index criteria can be used to select projects when a capital rationing situation exists, with the highest profititibility index from specified projects being the goal.
What is a balance diet ration?
A balanced diet ration is the ration of the various components that you have in your diet. For proteins and carbohydrates the ratio should be one to two so for every one protein, there are two carbohydrates.
Suppose a firm estimates its cost of capital for the coming year to be 10 What are the reasonable cost of capital for an average risk project high risk and low risk?
In order to determine reasonable costs of capital for average, high and low risk projects the firm should develop risk-adjusted costs of capital for each category of risk based on the concept of divisional WACC. If a firm estimates that its cost of capital for the coming year will be 10%, the firm should use 10% as the basis for its average risk projects since the firm will need to achieve a minimum of a 10% return on all its projects. Typically, a high-risk project has the potential for higher returns and a low-risk project will typically yield lower returns. Therefore, the firm could set the cost of capital for its high-risk projects at 12% and the cost of capital for low risk projects at 8%. Since the average risk project has a 10% cost of capital, the overall risk of the firms projects will be equal to the 10% cost of capital. Similarly, if the firm's high-risk projects are particularly risky, they could be set at a 15% cost of capital and the low-risk projects will be adjusted down to a 5% cost of capital. The ultimate goal is that the portfolio of the firm's projects will achieve the required 10% return or greater so that the cost of capital to fund the projects is covered. The assignment of risk is somewhat subjective but it is better than not adjusting the risk at all.
Who decides how profits should be spent in a corporation?
Ultimately, the Board of Directors decides how profits should be spent in a corporation.
Water found in the ogallala aquifer is made of the elements hydrogen an oxygen in a ration of 18 according to the law of definite proportions what should the ration of hydrogen to oxygen be for wate?
58
Should an economic test be applied in judge the activities of a corporation?
should an economic test be applied in judging the activities of a corporation
What is the motto of Resurfice Corporation?
Resurfice Corporation's motto is 'What Every Ice Resurfacer Should Be'.
How do you capitalize completed projects?
Completed projects can be capitalized by highlighting their names or titles. This can be done by using capital letters for the first letter of each word in the project name or by using all capital letters for the entire project name.
Should you use dba name as the company name or the corporation name as the company name?
The corporation name should be used as the company name.
When should a corporation or business unit outsource a unction or an activity?
A business unit or corporation should outsource an activity or a function when they want to cut of the costs.
