Discounted and Non-Discounted Cash Flow Methods for Investment Appraisal
The Cash flow statement represents the increased or decreased position of cash and cash equivalents in a business Cash flow methods for Investment Appraisal can be broadly categorised into discounted cash flow and non-discounted techniques. In investment appraisal, “discounted cash flow” methods consider the time value of money by discounting future cash flows to their…
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Raising Trade Credits for imports in India
Trade Credits (TC) denote the credits extended by the overseas supplier, bank, financial institution and other permitted recognised lenders for maturity, for imports of capital/non-capital goods permissible under the Foreign Trade Policy of the Government of India. Depending on the source of finance, such TCs include suppliers’ credit and buyers’ credit from recognised lenders. The…
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Misconceptions about Cost of Capital clarified
Common misconceptions about the cost of capital include believing it is solely the cost of equity, considering it a desired return rather than a required return, thinking it is a fixed number for a company, assuming retained earnings are “free,” and not factoring in the weighted average of different capital sources when calculating it (such…
Read article Impact of Flotation Costs on the Cost of Capital explained
Cost of capital is the cost of raising money for a business, while flotation costs are the fees a company pays when issuing new securities. Flotation costs are a factor in a company’s cost of capital. Cost of capital refers to the expense incurred by a company to fund its operations and investments. It encompasses…
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Understanding Divisional and Project Cost of Capital
Divisional and project cost of capital are the minimum rates of return required for projects or divisions that have different risk profiles than the company as a whole. For example, suppose a biscuit manufacturing company wants to start an ice cream manufacturing project. Can it apply the same weighted average cost of capital (WACC) from…
Determining the Optimal Capital Budget
Definition of Optimal Capital Budget: The optimal capital budget for a company is the point where the cost of raising capital equals the expected return. This can be determined using the investment opportunity curve (IOC) and the marginal cost of capital (MCC) curve. The intersection of these curves represents the optimal capital budget, ensuring that…
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