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Essay / Research Paper Abstract
This 3 page paper calculates the weighted average cost of capital at Colgate Palmolive., The paper looks at both the cost of equity and the cost of debt before brining the figures together for the WACC calculation. The bibliography cites 1 source.
Page Count:
3 pages (~225 words per page)
File: TS14_TEcolpm1.rtf
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Unformatted sample text from the term paper:
cost of capital it needs to be appreciated that there are two types of capital, equity and debt. Equity is the capital within the company that belongs to the shareholders
and debts the funding that has been provided by way of loans. It is worth noting that preference shares will usually be counted as a debt as these have different
terms and conditions. In calculating the average figure for each of the types of capital these may then be used to calculate the weighted average cost of capital (WACC).
In looking at Colgate Palmolive the figures for the latest set of accounts tell use that there is a total of $846.4 million
in equity. There are several ways of calculating the cost of equity. The cost of equity can be calculated in several ways. The most popular is the Capital Assets Pricing
Model (CAPM), also known as the SML model. The risk of any investment is usually measured in terms of the beta, the
greater the beta the higher the potential risk and also the potential reward (Anonymous, 2001). This model demonstrates that the higher rewards that are associated with the higher risks
should only be present when there is now way that this risk can be avoided (Anonymous, 2001). This is the case as whenever there is an investment made there will
be a risk as this is the nature of the market (Kerr, 1997). In this theory there is a compensation to be gained from taking this systematic risk, but if
a single company is invested in then there will be a specific risk, and it is this specific risk that the market does not compensate for (Anonymous, 2001). In applying
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