PASSED FINAL CUTIE GF Flashcards
(26 cards)
required return necessary to make capital budgeting project
COST OF CAPITAL
business is financed through equity
COST OF EQUITY
used by companies internally judge whether capital project is worth the expenditure of resources
COST OF CAPITAL METRIC
depends on the mode of financing used
COST OF CAPITAL
financed solely through debt
COST OF DEBT
represents hurdle rate that company must overcome before can generate value
COST OF CAPITAL
many companies used this combination of debt and equity to finance the business
WEIGHTED AVERAGE COST OF CAPITAL (WACC)
overall (blank) is derived from weighted average cost of all capital resources
OVERALL COST OF CAPITAL
From the perspective of an investor the cost of capital is?
is the return expected by whoever is providing the capital for a business
WHY IS COST OF CAPITAL IMPORTANT?
helps investor assess their options.
assists capital budgeting since businesses must decide if project worthwhile before starting.
essential for businesses to design the ideal capital structure of their firm.
used to evaluate the performance of certain project compared to cost of capital.
companies’ interest rates they pay on any debt such as mortgages or bonds
COST OF DEBT
return a company requires to determine if the capital return requirements are met investment
COST OF EQUITY
business’ cost of capital is based on weighted average of the cost of debt & cost of equity
WEIGHTED AVERAGE COST OF CAPITAL
process business undertakes to evaluate major projects or investment
CAPITAL BUDGETING
company might assess a prospective project’s lifetime cash inflows and outflows to determine whether the potential return would generated meet sufficient target benchmark
CAPITAL BUDGETING
looks at the initial cash outflow needed to fund a project, mix of cash inflows in the form of revenue, and other future outflows in the form of maintenance and other costs.
DISCOUNTED CASH FLOW ANALYSIS
cashflow except for the initial outflow are discounted back to the present date
PRESENT VALUE
resulting number from the DCF analysis
NET PRESENT VAUE
discounted since present value states than an amount of money today is worth more than same amount in the future
CASH FLOW
use combination of debt-such bonds or bank credit, it or the cost of capital
PUBLICY-TRADED COMPANIES
calculate the hurdle rate or the minimum amount that the project needs to earn from its cash inflows to cover the costs
GOAL OF COST OF CAPITAL
simplest form of capital budgeting analysis
PAYBACK ANALYSIS
widely used because it’s quick and can give managers “back of the envelope” understanding the real value of proposed project
PAYBACK ANALYSIS
most complicated form of capital budgeting analysis, also the most accurate in helping managers decide which project to pursue
THROUGHOUT ANALYSIS
