Cost capital assignment help is quite complex in the area of assignment help. The cost of capital is described as the cost of funds used for financing business. It refers to the opportunity cost of making a particular investment. It is characterized as the rate of return that could have been expected investing the same money to earn an alternative investment with equal risk.
When you require dealing with a cost of capital assignment help material, you can imagine how many factors and prior elements you need to implement in it. If only by thinking about cost capital assignment, worries start to mount up, you can make your writing process hassle-free by getting professional cost capital assignment help. This way, you can also easily achieve the academic goals. Cost of capital in financial management is an important part of the course.
Fundamentals of cost capital assignments
The following points should be considered while asking for cost capital assignment help.
- The objective of cost capital in financial management
The cost of capital is used to evaluate new projects of the company because it represents a hurdle rate that a company must overcome before it can generate a value. It is extensively used in the capital budgeting process to determine whether the company should proceed with the new project. For more on cost capital assignment help, take the help of cost capital assignment help experts.
- How cost of capital works
If you are writing a cost of capital assignment, naturally you want to delineate how cost of capital works in the field of financial investment. But if you miss the class or have difficulty in understanding the concepts of cost of capital, you can use expert advice from cost capital assignment help.
The cost of capital depends on factors such as its operating history, profitability, credit worthiness etc. Generally newer enterprises with limited operating history will have higher cost of capital than established companies with a solid track record because lenders and investors will demand a higher risk premium for the newly-established companies. Hence, cost of capital is determined by the market and represents the degree of perceived risk by investors. If a company comes across the choice of two investments of equal risk, the company usually chooses the one providing the higher return.
Let’s say, ABC Company is considering redoing its warehouse systems. The renovation will cost $50 million along with the expected savings of $10 million per year over 5 years. The expected risk is that the company will not save a full $10 million per year. As an alternative, the company could use the $50 million to buy equally risky 5-year bonds with the return of 12% per year. But the company would go with renovation investment with the return of 20% per year ($10,000, 000/ $50, 000, 000) because the 20% exceeds the 12%.
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- Influential factors that affect a company’s cost of capital
If you want to measure cost of capital of a company, naturally you have to review the influential factors that can alter the value of cost of capital. Here the factors described in brief, but if you want to enrich your knowledge on these factors, you can simply take professional cost capital assignment help. The factors are —
- Access to capital markets
- Tax concessions
- Exchange rate risk
- Political risk
- Relation between cost of capital and weighted average cost of capital (WACC)
WACC cost of debt help is an important part of cost capital assignment help. Let us tell you what is weighted average cost of capital? The return an investor gains on a company security is the cost of the security to the company that issued it. A company’s overall cost of capital is calculated as a mixture of returns needed to compensate all creditors and stockholders. This is called the weighted average cost of capital (WACC). All capital sources – common stock, preferred stock, binds and any other long-term debt — are included in a WACC calculation. WACC cost of debt help is needed for students availing cost of capital assignment help. WACC cost of debt help requires an understanding of a mathematical formula. The following formula is provided for WACC cost of debt help.
The mathematical representation of WACC is created by the cost of each capital component multiplied by its proportional weight. It is an important component of cost of capital in financial management. The formula is:
E = market value of firm’s equity
V = Percentage of financing equity
D/V = percentage of financing that is debt
Re = Cost of equity
Rd = cost of debt
Tc = corporate tax rate
A firm’s overall capital is based on the weighted average of debt and equity.
Let’s say ABC enterprise has a capital structure consisting of 70% equity and 30% debt; its cost of equity is 10% and after-tax cost of debt is 7% equity. Hence, WACC would be calculated as,
(0.7 X 10%) + (0.3 X 7%)
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How to calculate cost of capital
When you need cost capital assignment help, you are required to have a fair understanding how to measure the cost of capital. If you don’t clear your head, you won’t be able to demonstrate any example. After all cost of capital in financial management is an important concept. But with expert cost capital assignment help, you not only have the chance to gain conceptual knowledge of cost of capital in financial management but also one-to-one interaction with expert advisers giving cost capital assignment help.
A company's securities typically include both debt and equity. To calculate the cost of capital, one must calculate both the cost of debt and the cost of equity to determine a company's cost of capital. For more on cost capital assignment help, take the help of cost capital assignment help experts
How to calculate cost of debt
The cost of debt is relatively simple to calculate as it is composed of the rate of interest paid. It can be measured either before/after-tax returns. However, because the company usually deducts interest expense easily, the after-tax cost is seen most often. If you want to calculate after-tax rate, here is the mathematical representation of the equation,
After-tax rate = Before-tax rate X (1 – Marginal tax)
Cost of debt = before-tax rate
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How to calculate cost of equity
The cost of equity assignment help is more challenging to calculate as equity does not pay a set return to its investors. To understand, you need cost of capital assignment help.
After you gained the relevant knowledge on how to calculate cost of debt and cost of equity, now you can easily measure the cost of capital. For cost of capital assignment help, here is an effective example to demonstrate how to calculate the value of cost of capital of a company.
Let’s say, a corporation has $40 million of long term debt with an after of 4%, $10 million of 7% preferred stock and $50 million of common stock and retained earnings with an estimated cost of 15%.
Therefore, the weighted average after-tax cost of capital is:
($40 million X 4% = $1.6 million) + ($10 million X 7% = $0.7 million) + ($50 million X 15% = $7.5 million) = $9.8 million
$9.8 million/ $100 million = 9.8%
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