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The cost of a firm borrowing money is called the interest rate. This cost represents the percentage of the loan amount that the firm must pay to the lender as compensation for using the borrowed funds. It can vary based on factors such as the firm's creditworthiness, the loan's duration, and prevailing economic conditions. Additionally, the total cost of borrowing may also include fees and other charges associated with the loan.
What else can I help you with?
Who receives money in a firm?
Someone who receives money in a firm is called a treasurer
What circumstances would it make sense for a firm to borrow money to make its dividend payments?
A firm might consider borrowing money to make dividend payments if it has strong future cash flow projections but is temporarily short on liquidity. This strategy can be justified if the cost of borrowing is lower than the potential return on investments that the firm could pursue if it retained the cash. Additionally, maintaining dividend payments can be crucial for preserving investor confidence and stock price stability, especially in times of economic uncertainty. However, this approach should be approached cautiously, as it can lead to increased debt levels and financial risk.
How can leverage be used to increase a firm's profitability?
Leverage utilizes other people's money in the form of loans, to make the firm's existing money do more. Say a firm (or an individual) has $10,000 in capital, and an opportunity to make a 10% profit on an particular venture. That means they have the opportunity to realize a $1000 profit. If however, that venture, or some other, can return 10% on an even greater amount of money, say $100,000, the return would be $10,000. If the firm's $10,000 will allow it to get a loan for 90% of the venture, then the firm will keep the return from the $100,000 venture ($10,000), so that the profit is 100% rather than 10%. Of course, there will be costs associated with borrowing and repaying the $90,000, let's say $1000. The firm's profit is now $9000, still 9 times the return from a non-leveraged investment. So borrowing money to increase the power of your own money is what leverage is. Anyone who has a home mortgage is using leverage. The time period doesn't matter, the principle is the same. And it's possible to be 100% leveraged, that is to have no money of your own in a venture. The downside is, if the venture doesn't pay off or loses money. The loss gets leveraged back to the borrower. A $10000 dollar investment that loses 40% costs the firm $4000. A blow, but maybe survivable. That 90% leveraged $100,000 deal, if it loses 40%, costs the the firm $40,000, which could be crushing.
Why is the coupon rate a bad estimate of a firm's cost of debt?
A coupon rate is not a good estimate of a firm's cost of debt, as it is only a reflection of the firm's cost of debt when bonds were issued, not the current cost of debt. It's not representative of the yield in the current market.
How are the collections and purchases schedules related to the borrowing needs of the corporation?
Collection and purchase schedules allow a firm to track monthly cash flows. The collections and purcase schedules measure the speed at which receivables are collected and purchases are paid. To the extent collections do not cover purchasing costs and other financial requirements, the firm must look to borrowing to cover the deficit.
The amount of money that a firm pays to buy inputs is called?
Total cost
Who receives money in a firm?
Someone who receives money in a firm is called a treasurer
The cost of a firm that vary with the level of production are called?
variable cost
Do you need a degree to be a financial advisor if not does it cost money to become one if you are employed by a firm.?
No, you do not need a degree. Yes, it does cost money. In fact, in many cases you need a firm to sponsor your application.
What circumstances would it make sense for a firm to borrow money to make its dividend payments?
A firm might consider borrowing money to make dividend payments if it has strong future cash flow projections but is temporarily short on liquidity. This strategy can be justified if the cost of borrowing is lower than the potential return on investments that the firm could pursue if it retained the cash. Additionally, maintaining dividend payments can be crucial for preserving investor confidence and stock price stability, especially in times of economic uncertainty. However, this approach should be approached cautiously, as it can lead to increased debt levels and financial risk.
Is an investment an implicit cost?
Yes, investment is an implicit cost because it is a firm investing their own money in something that (by definition of an opportunity cost) could have been invested in something else. Investment is the opportunity cost of a firm using their own money, and whether or not the opportunity that the firm invested in is worthwhile is defined by the NROR (the normal rate of return).
What is money cost?
its refer to total money expendutre by firm on the various its men,s which it uses for production
What is revenue cost?
the revenue of the firm is the money received that a firms get from selling its output.
The costs of a firm that are paid directly in money are called?
Explicit costs!
If a firm's marginal tax rate is increased this would other things held constant lower the cost of debt used to calculate its WACC True or False?
True. An increase in a firm's marginal tax rate reduces the after-tax cost of debt because interest expenses are tax-deductible. This means that the effective cost of borrowing becomes lower for the firm, which, when calculating the Weighted Average Cost of Capital (WACC), results in a decreased cost of debt, assuming all other factors remain constant.
What is a Conservatively financed firm?
that would bring liquidity ad borrowing capacity to the marriage
What is the difference between cost of debt and cost of equity?
Cost of Debt: when company borrow funds from outside or take debt from financial institutions or other resources the interest paid on that amount is called cost of debt.Cost of Equity: Similarly when firm raise money from already shareholders by issuing more shares to them or shares to new share holders then the dividend (interest) paid to them is called cost of equity.
