Assessing cost of capital - Free Essay Example

Sample details Pages: 3 Words: 977 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Narrative essay Did you like this example? The cost of capital is the minimum return that investors expect for providing capital to a company. If the goal of a firm is to remain profitable any use of capital must return at least its cost of capital. The cost of capital is determined by summing the cost of various Components of capital. The weighted average cost of capital is frequently used as a benchmark when evaluating new projects or busineses, the weighted average cost of capital is the total of the cost of each component of capital. (Patterson, 1995) Capital has the following components, common stock, preferred stock, bonds and retained earnings. The cost of capital is generally calculated on a weighted average basis. Common stock are securities that represent equity ownership, providing voting rights and entitling the holder dividends from the company but not necessary in that the company choose when to pay out dividends and when not to pay out dividends. The price of common stock is projected by establishing the rate at which the shareholder discounts the anticipated dividends to establish the share value. Preferred stock is superior to common stock and generally has dividends that must be paid out. The cost of preferred stock is calculated by dividing the annual preferred stock dividends by net proceeds from the issuance. The long term debt is made through the issue of bonds. The earnings of the bonds are condensed by the expenses sustained in the issue and sale of the security. Bonds have a specific time period that they must be paid and they carry a maturity date. Retained earnings are earnings earned by the company which can either be kept by the company or paid out as dividends to the shareholders. The cost of retained earnings is the same as the cost of companys common stock. Weighted average cost of capital is determined by taking into account the weight of each component of the company capital structure. Market value of the components is used rather than the book va lues. (Patterson, 1995) Weighted average cost of capital =E/V-Re+Rd- (1-Tc) Where; Re= is the cost of equity Rd =is the cost of debt, E= is the market value of the firms debt, V=E+D, E/V is the proportion of funding that is equity D/V= is the fraction of funding that is debt Tc= is the corporate tax rate. Cost of capital also includes cost of equity which is associated with market risk. Market risk is the risk that the investment value will decrease due to changes in market factors. When shareholders want to invest in a company they want to see more equity than debt. As market changes so does the cost of capital. The increase or decrease of cost of capital is according to how the market is doing. The debt to equity mix must be right, because if a company has too much debt, the investors might not invest in the company. The objective of the financiers is to find the right mix to provide highest expected long-term shareholder value. Risk can be measured in t wo ways; one is by using modern portfolio theory and the capital asset pricing and second is to look at other risk factors that affect the business. Basically in order to use the capital asset pricing to determine the proper discount rate, one must know the stocks beta, the nominal risk free rate, and the anticipated return on the marketplace. Stocks with betas greater than 1 are more risky. CAPM = Where is the required return, R (F) is the risk free rate return, b is the beta coefficient and r(m) is the return on the market assets.( Bragg,2007) Modern portfolio theory reduces portfolio risk by selecting balancing assets based on statistical techniques that quantify the amount of diversification by calculating expected returns, the main objective of this theory is to find which portfolio has the maximum return for a specific risk, or the minimum risk for a given return. The second way to measure risk is to start by taking into account the effects of the following risks e.g. financial risk which involves companys capital structure, business risk which involves the future of the business like how the company will look in the next ten years. (Bragg, 2007) Standard deviation is a quantitative statistical measure of the variation of particular returns to the average of those returns. Here r(j) is the j-th outcome of return, the Pr(j) is the probability of the j-th outcome and the n is the number of outcomes. (Gaughan, 2007) The greater the standard deviation the greater the risk however standard deviation cannot be used in comparison of investments unless they have the same comparable returns. Coefficient of variation indicates risk per unit. It is a better measure of risk, hence allows comparison of different investments. The investments with smaller return have the greater risk. While standard deviation measures the dispersion of returns, the coefficient of variation measures their relative dispersion. The coefficient of variation is or stand ard deviation of returns divided by, which is expected value of average return. According to me the choice of 6% cost of capital is to get returns on capital and sustain our market value. Don may be correct that in these economic times it is better to only invest in projects with higher expectations for returns. The choice of the appropriate discount rate to use should be based on the riskiness of the target and the volatility of the project, the target cash flows are focused as they reflect the value of the investment. So in use of 6% or 7% should take into account then above reasons. The riskier the investment the higher the discount rate should be used. The higher the discount rate the lower the present value of the projected cash flow .so the use of 7 % will lower the expected returns. (Gaughan, 2007) Don’t waste time! Our writers will create an original "Assessing cost of capital" essay for you Create order

Analysis Of The Movie The Truman Show - 1115 Words

The Truman Show (1998), directed by Peter Weir is a satirical portrayal of our American culture and our media. It’s a distorted version of our own modern reality. Everything having to do with the virtual Truman Show is about consumerism. It starts from Truman Burbank himself. He lives a commercialized life. His whole life is a television show to get the best ratings. He is the personification of our consumer society. The television show in the movie is an exaggerated version of our own media that doesn’t seem very far-fetched. We can laugh at this movie as it seems absurd, but in reality our society is headed down the path where a â€Å"Truman Show† of our own may very well happen. This film relates to American culture and our media, focusing on our fascination with reality television. It’s a weird phenomenon in which we rather sit at home and watch a celebrity’s life instead of living a life of our own. â€Å"It is a story that reveals an essential truth about what is happening to society in the 20th century, how the media and corporations have begun to surround us with a universe of illusions (Goldman). In the movie, Truman Burbank’s entire life is broadcasted to the world. Except this show takes it a step further as Truman has no idea about his life being a show because it started from when he was an infant. Seahaven, the town he lives in is a made up â€Å"utopia† that is actually a giant bubble television set where everything from the weather to the ocean is fake. Everyone in hisShow MoreRelatedAnalysis Of The Movie The Truman Show 1439 Words   |  6 Pagesin the movie, The Truman Show that was released in 1998, distributed by Paramount Pictures, directed by Peter Weir, and includes stars such as Jim Carrey, Laura Linney, Natasha McElhone and many more. There is a crucial need to criticize the media in order to explore the way something is presented and to be sure that we are thinking for ourselves because the media is not always accurate in its portrayal of facts. The Truman Show is a non-stop, 24 hour live broadcast of a man named Truman BurbankRead MoreAnalysis Of The Movie Truman Show 1822 Words   |  8 Pagesfor television? The Truman Show is a film where a man for his whole life has been filmed for the entertainment of others and doesn’t even realize that he is on camera at all times. There are a few scenes that will be discussed whether the scene is able to provide a religious experience. The Truman Show is about a man named Truman Burbank. Before he was even born a large corporation adopted him to use as the main character for their television show. Throughout the movie, Truman slowly starts to noticeRead MoreMovie Analysis : The Truman Show1543 Words   |  7 PagesOn June 5th, 1998, The Truman Show was released to critical acclaim. Starring Jim Carrey in an uncharacteristic dramatic role, the movie blew past its budget at the box office earning over 264 million dollars (Movie Index, A-Z). Less than a year later on march 26, 1999, an identical movie with a similar plot premiered. Edtv performed poorly at the box office despite its star studded cast, making almost 50 million under budget (Movie Index, A-Z). The crew included popular dramatic actors includingRead MoreAnalysis Of The Movie The Truman Show 1081 Words   |  5 Pages The Truman Show is a 1998 comedy-drama starring Jim Carrey as Truman Burbank, a man born and raised in the town of Seahaven, Florida. What Truman doesn’t initially realize, however, is that Seahaven is a giant television set, filled with many thousands of cameras. Truman’s life is being broadcast worldwide, controlled from above by the creator, Christof. Truman lives his life in blissful ignorance while Christof pulls all of the strings and controls the direction of Truman’s life. Everyone inRead MoreRhetorical Analysis of The Truman Show1521 Words   |  7 Pages What I aim to do with this rhetorical analysis is bring forth to the reader a deeply immersive look at the rhetorical concepts present in the film The Truman Show. It is important for a viewer to fully understand the underlying messages and subtle undertones in between the lines, so to speak. The Truman Show is one man’s life being played out in a closed environment for the entertainment of the outside world. Most important to note, Truman Burbank has no clue that his whole life has been littleRead MoreManipulated Free Will Essay1372 Words   |  6 Pagesthing or things make them happy is just as important as their right to be unhappy. In Huxley’s novel and in the film, The Truman Show, freedom is so manipulated and tainted that by todays standards it could not be considered freedom at all. In both Brave New World and The Truman Show it shows the negative effects this type of society can cause. In both the novel and film it shows how drug or substance abuse must be enforced to pacify and conditioning are used a means to control the subject or subjectsRead More Truman Capotes In Cold Blood: Novel vs Movie Essay1611 Words   |  7 Pagesnonfiction story by Truman Capote. This book presents one of the worst murders in history. It was a best seller worldwide, and turned into a successful movie. As usual the movie does not stand up to the book. If you want more knowledge of the townspeople, victims and more insight into the trial, more background details of the murders, you should read the book. If you are interested in history and a good murder mystery all in the confines of a book cover, read In Cold Blood by Truman Capote. WhileRead MoreSynthesis of Truman Show and Platos Allegory of the Cave1440 Words   |  6 PagesCritical Analysis of The Truman Show and Platos Allegory of the Cave When The Truman Show was released in 1998, it was just another popular Hollywood flick, but its story is closely related to Platos Allegory of the Cave. The plot line for the movie follows this classic tale in many ways, some more obvious then others. As with most cinematic treachery, the movies similarities are no coincidence. The writers drew from Platos classic because it is such a universal story and is somethingRead MoreTruman Capote and Rachel Armstrong: Analysis of Critical Movie Characters1171 Words   |  5 PagesTruman Capote and Rachel Armstrong Critical Movie Character Analysis How the characters are positioned as Outsiders, in their lives and in the films (i.e. how do they behave as outsiders in their on-screen world, amongst friends, family, colleagues, etc., and how does the film emphasize that outsider position). The two characters, Truman Capote and Rachel Armstrong, are definitely to be considered outsiders. They both live outside the realm of what could be considered a normal life by mostRead MoreAnalysis Of Truman Capote s Novel The Cold Blood Genre 1320 Words   |  6 PagesName: Amy Nguyen Date: 9/30/15 Period: 5 Book Title: In Cold Blood Genre: Nonfiction novel (Crime) Author: Truman Capote Number of pages: 343 Brief Summary and â€Å"Arrangement† of the Book: †¢ This book was arranged in some scenes within four chapters. As you read the book, you see that it is formatted similar to a movie or a documentary. Similar to a crime documentary, where we already knew who committed the early in the book, but as the book goes on we find out what their motives and

Was Aristotle Right or Wrong free essay sample

Was Aristotle Right or Wrong? Jennifer L. Chadwick Grand Canyon University Biology Concepts Lab June 1, 2011 Resource 1: Was Aristotle Right or Wrong? Directions The exercise below presents a scenario that begins with an observation made by Aristotle (4th century BC). The theory of Spontaneous Generation, which suggests that life originated from inanimate matter, was popular in the ancient world. Your assignment is to apply the scientific method beginning with Aristotle’s observation by answering the questions in this document.All your responses to this assignment should be based on the information given on â€Å"Was Aristotle Right or Wrong? † Scenario Imagine that you live in the 4th century BC. You and Aristotle (your friend and companion of many years) are talking about the many wonders of the universe when your friend makes the following observation: â€Å"So with animals, some spring from parent animals according to their kind, whilst others grow spontaneously and not from kindred stock; and of these instances of spontaneous generation some come from putrefying earth or vegetable matter, as is the case with a number of insects†¦. We will write a custom essay sample on Was Aristotle Right or Wrong? or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page (Wilkins, 2004, para. 12) Well, you think to yourself, Aristotle is a really good friend and an equally great guy, but you aren’t so sure about this Spontaneous generation thing. Just because he observed insects arising from spoiled vegetables doesn’t mean that these bugs just appeared out of the blue. Insects dont just spontaneously arise from spoiled vegetables or, do they? You decide to do a little research of your own by following the steps of the Scientific Method. I. Observation/QuestionIf vegetables are covered then no insects will hatch. III. Prediction This is more specific than your hypothesis. What do you predict will happen in your experiment? Your prediction will include a statement concerning the predicted affect of your independent variable. By changing the environment that the vegetables are stored in and also the climate but keeping the vegetables covered the vegetables will not produce insects. IV. Experimental Design Design an experiment as a tool to find out if your prediction is right or wrong.Remember that good experiments do not set out to prove that a hypothesis is correct, but to test whether or not it is wrong. Four bunches of carrots, open basket, Tupperware container, and cellophane. The control group bunch left on a plate, uncovered on the counter. One test group outside in a basket, one test group in the refrigerator in cellophane and one test group in Tupperware on a shelf inside a kitchen cupboard. Never open or unwrap the containers the carrots are in, just observe through the plastic every 12 hours until they begin to rot. Once they begin to rot I will observe more frequently. The Independent Variable The independent variable is the variable that you intentionally change. Independent variable is the climate the vegetables are kept in. The Dependent Variable The dependent variable is the variable that is being measured. This is your data. It is the difference between the experimental group and the control groups after you adjust the independent variable. I will observe what happens regarding the insects by what I did to change the environment they are kept in. The Controlled Variables Controlled variables are the vegetables. GCU style is not required for the document as a whole, but solid writing skill is expected. The experiment had three test subjects, carrots wrapped in cellophane in the fridge, carrots in Tupperware in a kitchen cupboard and carrots in a basket sitting outside. The control was carrots left on a plate on the counter. This experiment could be conducted with different vegetables, fruits and even meats at different times of the year and in different climates and I believe the results would be the same. Covered fruits, veggies or meats may get gross and smelly if left to rot but will not birth insects.