Purchase Solution

cost of capital on the investments

Not what you're looking for?

Ask Custom Question

Please provide some assistance with the following questions. Any clarifications you can provide are greatly appreciated.

See the attached file.

Attachments
Purchase this Solution
Solution Summary

This explanation provides you a comprehensive argument relating to cost of capital on the investments.

Solution Preview

1. What happens to a firm that fails to earn at least its cost of capital on the investments it makes?
The cost of capital is the rate that must be earned to satisfy the required rate of return of the firm's investors. So, if the cost of capital is not earned, the required rate of return of the firm's investors is nor earned. In other words shareholder wealth gets reduced. The cost of capital is also the opportunity cost of an investment, this is the rate of return a company would have been able to earn at the time risk level as the investment that has been selected.
There are several actions that may take place when a firm fails to earn its cost of capital on investments. The investors will sell the shares and the market value of the stocks may fall. The investors may also attempt to change the management.

2. Under what circumstances would a ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
Recent Feedback
  • "I read your comments, and thank you for this feedback. Do I need to find other studies that applied this methodology Ive used? That's where I'm stuck at."
  • "Thank you kindly sir. "
  • "Excellent and well explained. --Thank you kindly. "
  • "Awesome notes. I appreciate you."
  • "I have the follow-up project and I will assign that to you very soon. "
Purchase this Solution
Free BrainMass Quizzes
Employee Orientation

Test your knowledge of employee orientation with this fun and informative quiz. This quiz is meant for beginner and advanced students as well as professionals already working in the HR field.

SWOT

This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.

Introduction to Finance

This quiz test introductory finance topics.

Basics of corporate finance

These questions will test you on your knowledge of finance.

MS Word 2010-Tricky Features

These questions are based on features of the previous word versions that were easy to figure out, but now seem more hidden to me.

View More Free Quizzes
Related BrainMass Solutions

  • Cost of Capital for investments/ Required rate of return

    455752 Cost of Capital for investments/ Required rate of return In thinking about investments, especially capital investments by a firm, the cost of capital and especially the WACC is hugely important.

  • Cost of capital

    Based on the information in the table, if the investments are independent, the firm should select A.the higher IRR investment. B.all investments with an IRR that's greater than 8 percent.

  • Weighted Average Cost of Capital: Capital Investment Program

    320144 Weighted Average Cost of Capital: Capital Investment Program What is the Weighted Average Cost of Capital? How it is used in a capital investment program to select investments? What is the Weighted Average Cost of Capital?

  • Cost of capital for overseas investments

    The cost of capital and risk of overseas investments.

  • Capital Investment Decisions

    b) A company is comparing the profitability and capital investments of two district offices to determine which one has the best current return on investment.

  • Global Business Management: Capital Investments and Budgeting

    Shareholders expect managers to invest only if the expected rate of return exceeds the cost of capital. Because of this managers cannot ignore the cost of capital imperative and their focus should be on returns over and above cost of capital.

  • Investment Rejection, Cost of Capital & After-tax Effects

    b)capital budgeting decisions 3 multiple choice questions on cost of capital, after-tax effect on savings and auto-rejection of investments are answered with explanation.

  • Evaluating a new investment opportunity

    ( Resources will include all kind of resources such as human, physical and financial) 1. For investments involving significant risk, the cost of capital is equal to the: rate of return on the investment.

  • Analysis of Financial Management and Investments

    I have used the term NPV which would correspond to NPR written in the question This solution of 275 words provides recommendations on what company should undertake when deal with annual cost, investments and fixed capital budget.

  • Cost of Capital and Capital budgeting for HBM, Inc.

    You purchase machinery for $23,958 that generates cash flow of $6,000 for five years. What is the internal rate of return on the investment? 5. The cost of capital for a firm is 10 percent.

View More Related Solutions