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Cost of Capital | Examples Meaning - InvestingAnswers Investors want to put money into companies that exceed the cost of capital, thus generating returns that are proportionate with the risk The cost of capital is used to compare different investments with equal risk In a nutshell, the cost of capital is the rate of return required to persuade the investor to make an investment
WACC | Weighted Average Cost of Capital - InvestingAnswers To calculate WACC, you will need to read through a quarterly statement to find the factors used in our example of weighted average cost of capital While current market capitalization and the tax rate is easy to find, the market value of debt requires investors to calculate the entire debt load as one single bond coupon by using the bond quote
CBA | Cost Benefit Analysis Definition - InvestingAnswers The company would stand to increase its value by $168,181 after one year In this case, the benefits outweigh the cost Benefit-Cost Ratio (BCR) Because a cost-benefit analysis should be performed thoroughly, many companies don’t rely on a single model to determine the financial outcome of a project
Cost of Equity: Definition and Example - InvestingAnswers The cost of capital includes both equity and debt costs in the evaluation The cost of capital includes weighing the cost of equity, as well as the cost of debt when looking at a capital purchase (such as acquiring another company) The cost of debt is typically the interest rate paid on any loans or bonds for the transaction
Economic Profit Definition Example - InvestingAnswers Capital Investment = $1,300,000 WACC = 056 or 5 60% Economic Profit = $3,380,000 - ($1,300,000 x 056) = $3,307,200 The positive number tells us that Company XYZ more than covered its cost of capital A negative number indicates that the project did not make enough profit to cover the cost of doing business Why Does Economic Profit Matter?
Cost Basis Definition Example - InvestingAnswers Income realized from the asset, including dividends and capital distributions (even if they are reinvested rather than received in cash) increases the cost basis Thus in the above example, if your stock paid a $1-per-share dividend every year for three years, your basis would increase to:
Working Capital | Example Meaning - InvestingAnswers Net working capital = ($100,000 - $25,000) - ($30,000 - $15,000) = $60,000 This shows that the company has $60,000 to actually run the business A lower net working capital would be ideal as that would mean a lower cost of running the business Difference Between Working Capital and Cash Flow
Opportunity Cost | Example Definition - InvestingAnswers That $15,000 is a sunk cost, spent to purchase the stock regardless of whether it’s sold or held The opportunity cost is the 5% of the CD, representing what he could have earned if the money was invested differently Example of Sunk Cost vs Opportunity Cost In business, the sunk cost is often considered before undertaking a project
Capital Asset Definition Example - InvestingAnswers Capital assets are recorded on the balance sheet at their historical cost, less any accumulated depreciation (or amortization in the case of intangible assets) So if Company XYZ paid $100,000 for a piece of equipment in the factory, it would record it as a $100,000 asset on its balance sheet
Economic Value Added | Meaning Formula - InvestingAnswers Capital Investment = $1,300,000; WACC = 056 or 5 60%; The EVA will be: $3,380,000 - ($1,300,000 x 056) = $3,307,200 Because of this positive number, we can determine that Company XYZ more than covered its cost of capital A negative number would indicate that the project didn’t make enough profit to cover its business costs