C) As a firm initially substitutes debt for equity financing, what happens to the cost of capital, and why? The cost of capital initially declines because the effective cost of debt is less than the cost of equity D) If a firm uses too much debt financing, why does the cost of capital rise? As the firm continues to substitute debt for equity, the firm becomes more financially leveraged and riskier. This causes the interest rate to rise and the cost of equity to increase. These increases in the cost of debt and equity cause the cost of capital (i.e., the weighted average) to
Demand side policies are those that manipulate the level of aggregate demand (AD) to achieve one or more economic objective. The policies can be fiscal policies (changes in government spending and/or taxation), or they might be monetary policies (which are largely changes in the short-term rate of interest). The four major macroeconomic objectives are a sustainable level of economic growth; low inflation; low unemployment; and a medium term balance on current account. Recently the government have used loose fiscal policy and the MPC have reduced the rate of interest. These are designed to increase the level of AD and increase in national income.
Precedents usually yield higher valuations than trading comps because a buyer must pay shareholders more than the current trading price to acquire a company. This is referred to as the control premium (use 20 percent as a 31 Customized for: JJ (firstname.lastname@example.org) Vault Guide to Private Equity and Hedge Fund Interviews Finance benchmark). If the buyer believes it can achieve synergies with the merger, then the buyer may pay more. This is known as the synergy premium. Between LBOs and DCFs, the DCF should have a higher value because the required IRR (cost of equity) of an LBO should be higher than
Therefore, this means that the average Bahraini disposable income will significantly increase, hence, they will increase spending on goods and services. An increase in salaries is therefore a direct signal interpreted by businesses to consider in planning their business offerings. A salary increase might also affect the banking sector, as savings may increase, resulting in extra liquidity with the banks, which is then channeled back through consumer loans or financing facilities for the business sector. Indirect signals are causal in terms of not being precisely valid and reliable. An economist will create a conclusion based on a certain observation that has a relation to the other.
The basic answer is that share repurchases are great when the share price is undervalued, and not-so-great when the share price is overvalued. To put it into a more useful context, if you would otherwise reinvest your dividends or invest new capital into the company at current stock prices, then share repurchases are useful to you because the company basically does it for you. The alternative is that the company could pay you a higher dividend, but you’d be taxed on that dividend and reinvest it into the company anyway. On the other hand, if you would not reinvest dividends or invest new capital into the company at current prices, then share repurchases are not in alignment with your current outlook, and it would be better for you to receive a higher dividend. Something else to be considered is that when a company uses money for share repurchases when it could be paying a higher dividend instead, the company’s management is limiting your control and increasing theirs.
Who should lead the way for Pan-Europa? They should incorporate strategies that would increase their stock price. Due to low stock prices, raiders are buying the stocks. They should increase net income and gross sales to drive up the stock price. They should reduce their debt due to high debt to equity ratio and capitalize on their increased market share.
Under first in, first out (FIFO), the first costs into inventory are the first costs assigned to costs of goods sold. Last in, last out (LIFO) costing assigns the last costs of inventory to the first costs of goods sold. A fast moving consumer goods company (FMCG) in times of rising prices would pay less income tax if it used the LIFO inventory accounting method. A FMCG in times of rising prices that uses LIFO would be selling its inventory with the highest prices. This would increase the costs of goods sold and lower the net income for the company for that accounting period.
CCI would be taking a somewhat high risk by issuing additional stock due to the uncertainty about the offering price. Having a low P/E ratio with respect to the rest of the market, and the replacement cost of the firm being greater than its book value (argument 3), there is a good chance that the current stock price and the proposed offering Although long-term debt is a better financing choice a few of the drawbacks are pointed out. Debt holders claim profit before equity holders, so the chance that profits may be lower than expected, increases risk to equity may reduce or impede stock value. However, in extreme financial situations such as a recession period, CCI would still be able to increase its cash during a recession period with all debt capital structure. Also, there is a remaining 12.5 million that would have to be paid at the expiration of the bonds, but that could be paid off by issuing new bonds or additional equity at that time.
With increased wealth an economy is more likely to grow because consumer expenditure will increase a large component of aggregate demand. Income tax cuts would also lead to more entrepreneurs and highly skilled workers joining to the country, also increasing aggregate
Investment projects, via the multiplier effect should result in an increase in the GDP of the economy; However in order to undertake investment, there must a high savings ratio must be obtained as it is essential for the accumulation of capital. Labour plays a critical role in achieving economic growth. The higher the number of workers there is in an economy should lead to economic growth. If there are more people working and unemployment levels are relatively low, then there is likely to be the achievement of economic growth as human resources