The certainty-equivalent approach explicitly recognizes risk, but the procedure for reducing the forecasts of cash flows is implicit and is likely to be inconsistent from…

The certainty-equivalent approach recognizes risk in capital budgeting analysis by adjusting estimated cash flows and employs risk-free rate to discount the adjusted cash flows. On…

A Company may raise debt in various ways. It may borrow funds from financial institutions or public either in form of public deposits or debentures…

The measurement of cost of preference capital poses some conceptual difficulty. In case of debt, there is binding legal obligation on the firm to pay…

Firms may raise equity capital internally by retained earnings. Alternatively, they could distribute the entire earnings to equity share holders & raise equity capital externally…

Firms may raise equity capital internally by retained earnings. Alternatively, they could distribute the entire earnings to equity share holders & raise equity capital externally…

The minimum rate of return which equity share holders require on funds supplied by them by purchasing new share to prevent a decline in existing…

After calculating costs, they are multiplied by weights of various sources of capital to obtain a weighted cost of capital (WACC). The composite, cost of…

Net Income Approach:- The essence of net income approach is that the firm can increase its value or lower the overall cost of capital by…

According to the net operating income (NOI) approach the market value of the firm is not affected by the capital structure changes. The market value…