Approach and Concepts to calculate cost of Capital
The
weighted Average Cost of Capital refers to the average price of return that a
firm should pay to creditors and shareholders.
Financial analysts normally focus on a company’s total capitalization,
which is the capital structure or mix of long- run sources of finance used by
the company. Firm’s capitalization consists of bonds, preference shares and
common stock as per our Ratio
analysis assignment help experts. To estimate the WACC, one need to
identify the capital constitution mix and the cost of all the sources of fund
utilized. The vital assumption in any system of weighting is that the company
will definitely increase capital in the specified proportions. These firms hike
funds marginally to make incremental investments in latest projects. Thus the
capital cost of the marginal is used wholly in the firm instead of using the
firm’s capital in general. The
Heinz case assumptions incorporates that the firm managers have to leave their
own desires and concentrate on maximizing the …
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