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Submitted by susie22782003 on Thu, 2012-06-28 16:20
due on Mon, 2012-07-02 16:17
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MT217 Unit 7 Discussion

Capital budgeting involves decisions about whether or not to invest in fixed assets, and it has a major influence on firms' future performances and values. Discounted cash flow analysis is used in capital budgeting, and a key element of this procedure is the discount rate used in the analysis. Capital must be raised to finance fixed assets, and this capital comes from different sources: debt, preferred stock, and common equity. Each of these capital components has a cost, and these cost rates, along with the target proportions of each, are used to calculate the firm's weighted average cost of capital or "WACC."

Go to http://ro.uow.edu.au/commpapers/317/. In the middle of the page, click on the link for "Download the Document" (PDF Format). This will open a new document in Adobe Acrobat. Read the article titled "A Comparison of the Weighted Average Cost of Capital for Multinational Corporations: The Case of the Automobile Industry Versus the Soft Drink Industry."

After you have completed the above, answer the following question:

Identify some problem areas in the cost of capital analysis. Do these problems invalidate the cost of capital procedures we are discussing in this unit?

Answer
Submitted by shahimermaid on Fri, 2012-06-29 01:28
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problem areas in the cost of capital analysis with respect to the research paper

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with xxxxxxx xx xxx paper, xxxx can xx xxxxxxx as

xxxx xxx xxxx components - xxxx xx debt, xxxx xx equity, xxx rate xxx xxxxxxx structure.

xxx paper xxxxxxxxx two industries- soft xxxxx and xxxxxxxxxxxx

In soft xxxxx xxxxxxxxx there are 4 xxxxxxxxx xx xxx world that control the majority xx xxx xxxxxxx When xx analyse their xxxxx xxxxx is xxxxxxxxxx due to xxxxxxxxxx xx the xxxxx xx xxxx xxxx xxxx due to the fact xxxx they xxx operational xx xxxxxxxxx countries.

xx xxxxxxxxxx industry, x companies xxxx been considered in the world

cost xx xxxxxxx differ xxxxxx xxx countries xxx companies in xxx xxxx xxxxxxxxx

xxx xxx company xxx xxx xx x xxxxxxx xx various countries. xx should xxxxxx xxx one xxxxx cost of capital is xxxxxxxx

when xxx xxxxxxx xxxxxxxx xx various xxxxxxxxxxxx areas, xx xxx this xx xxx advantage.

xx xxxxx xxxxxxxx xxxxxxxxxx xxx xxxx of capital procedures we are discussing in this xxxxx

no, the xxxx of capital xxxxxxxxxxx would have xx xx done time xxx again xxxx

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Answer
Submitted by Asma on Thu, 2012-06-28 16:25
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I hope it will help you

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Cost of capital xxxxxxxxxx xxx opportunity xxxx xx the capital. It is weighted xxxxxxx xxxx xx xxx the xxxxxxx of funds xxxx in xxx firm. xxxxxxx of funds xxx be equity, xxxx or xxxxxxxxx xxxxxx xxxx xx the xxxxxxx areas xxxx

1) xxxxxxxxxx the xxxx xx equity xxxxxxxx xxx xx xxxxxxxxxxxx xxx example xxxxxxxxxxx xx growth rate xxx xxxxxx cash xxxxx xxxx xx be done to estimate the xxxx of xxxxxxx These assumptions may go xxxxx xxx change in external environment.

xx Market xxxxxx xxx change drastically affecting xxx xxxx of xxxxxxxx

xx Risk factors may xxx be xxxxxxxxxx while calculating the xxxx xx capital

These problems don’t xxxxxxxxxx xxx cost of xxxxxxx xxx xxxxx about the limitations of xxx calculating xxx


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