Corporate Finance Content List
Capital asset pricing model is a widely used technique to calculate the expected rate of return for equity investment. It considers the beta or systematic risk, expected market return and risk free rate to calculate the expected rate of return on equity investment. E(R) = RFR + β [E(Rm) –RFR] Where, E(R) = Expected rate […]
Continue Reading... No Comments.There are lots of methods available to the analysts to calculate the cost of equity. Among them, 2 methods are used most widely which are Discounted Cash Flow (DCF) approach Capital Asset Pricing Model (CAPM) Discounted Cash Flow (DCF) approach is further divided into two methods depending on the growth of the company. These methods […]
Continue Reading... No Comments.Different components of capital, which the companies use to raise money from the market, are specified below… Retained earnings New Equity Capital Preference Share Capital Long term debt Different methods are followed to calculate the cost of each type of capital… The details are explained in subsequent posts.
Continue Reading... No Comments.Working capital management refers to the decisions and managing the working capital during the normal course of business operational activities. This involves managing the relationship between a company’s current assets and current liabilities. The main aim of Working capital management is to ensure that the company utilizes the working capital properly and generates sufficient cash […]
Continue Reading... No Comments.Discounted method is used to calculate the present value of any future cash flows. The cost of capital at which the company borrows money determines the discount rate of return to calculate the discounted value of any cash flow. The discount rate used is equal to the working average cost of capital (WACC) or the […]
Continue Reading... No Comments.There are five methods to evaluate a capital budgeting decision. But someone should know all the methods to use them properly to evaluate any capital budgeting proposal. Keep these points in mind while selecting the proper evaluation method Net Present Value (NPV) is the most widely used method to evaluate a capital budgeting decision. But […]
Continue Reading... No Comments.Profitability index refers profitability of the project based on the initial investment. It is calculated as the present value of all the future cash flows from a project divided by the initial investment. Profitability Index = (Present Value of all the future cash flows/Initial Investment) Now we know that NPV = -CF0 + Present Value […]
Continue Reading... No Comments.Discounted payback period is a slight modification of the payback period, where it considers the discounted cash flows instead of normal cash flows. Based on the discounted cash flows the payback period or the period required to recover the initial investment money is calculated. Example of Discounted payback period Suppose for project X, the initial […]
Continue Reading... No Comments.The payback period denotes the number of years or periods a project will take to recover the initial investment for the project. It is determined in terms of years or periods. To calculate the payback period the net cash flow is calculated after considering the cash inflow at the end of each period until it […]
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