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Essay / Research Paper Abstract
This 5 page paper calculates the weighted average cost of capital at London Clubs International. The paper demonstrates how the cost of equity and the cost of debt can take place, with the different options all explained. The figures are then combined them to calculate the WACC. The cost of equity is calculated use the CAPM model, as the company is paying no dividends. The bibliography cites 3 sources.
Page Count:
5 pages (~225 words per page)
File: TS14_TEwacclc.rtf
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Unformatted sample text from the term paper:
depends on the source of the capital. The total cost can be expressed as the weighted average cost of capital. This is defined as "An average representing the expected return
on all of a companys securities. Each source of capital, such as stocks, bonds, and other debt, is weighted in the calculation according to its prominence in the companys" (Investor
words, 2003). The best way of demonstrating this is to conduct a calculation, here we are using London Clubs International In order to
calculate the overall 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). All figures quoted are in thousands unless otherwise specified. In looking at London Clubs International the figures for the latest
set of accounts tell use that there is a total of ?2,781 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 (Goetzmann, 1997). This model demonstrates
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