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Essay / Research Paper Abstract
This 9 page paper examines a case supplied by the student, assesses two projects by demonstrating how to calculate the payback cost of equality, the weighted average cost of capital, the payback period, net present vale and the internal rate of return.
Page Count:
9 pages (~225 words per page)
File: TS14_TEbbboun.rtf
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Unformatted sample text from the term paper:
form of dividends against the shares (for the following year) divided by the current market value of the stock. This is then added to the growth rate of the dividends.
This would result in an equation that would look like this Cost of equity = (dividends per share/current market value of stock) + growth rate of dividends. In this example
we have the level of equity, which is out of date expressed as the number of shares and the value they were sold at. However we do have a figure
for the total equity, as such this is the figure we will use assuming that the share prices have moved in the same way. We also have a figure given
for the dividends. Therefore, using this information and assuming no growth the total is as follows; Total dividends are 38,000 and equity is 4,213,000 which means that as a percentage
the cost of equity indicated here is 0.9%. 3 To calculate the weighted average cost of capital the student needs to first understand the way this is calculated. This
is the average cost if all the capital, both borrowing and equity. We already have the cost of equity, as 0.9% and we have the value of the equity.
We also need to assess the cost of debt. There is a total of 1,688,000 in loans, which we are told is payable at 10%. Therefore, the calculation will be
to calculate the rate of the debt and equity and then use this to calculate the relevant percentage payable towards the average and then add these together. This is shown
below. Amount (000) Ratio (a) Interest rate (b) Proportional interest (a x b) Bank Loan 1688 0.29 (1688/5901) 10 2.86 Equity 4213 0.71 (4213/5901) 0.9 0.64 Total 5901
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