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Capital structure decisions
Capital structure decisions refer to the decisions businesses have to make with regards to the mix of financing they use. The mix consists of debt and/or equity as sources of capital. In other words,...
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The cost of capital
What is the cost of capital? It is the required rate of return a business must earn on its investments (capital budgeting projects) to maintain the market value of the firm’s shares and to attract...
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(WACC) Weighted average cost of capital (ra)
Weighted average cost of capital (WACC) (ra) is a very simple concept. Weighted average cost of capital (WACC) refers to the weighted cost of both debt and equity financing, according to the firm’s...
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Weighted Marginal Cost of Capital – WMCC – and the Break Point
Weighted Marginal Cost of Capital – WMCC – is the WACC applicable to the next dollar of the total new financing. Related to the concept is the break point concept. Weighted average cost of capital...
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Residual theory of dividends
Residual theory of dividends purports that dividends must only be distributed after a firm undertakes all acceptable investments. To determine whether any retained earnings are left to be distributed...
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Sources of financing
When it comes to financing, firms at any stage of the company’s life cycle have three options from which to choose: Internal financing – using retained profits. External financing – using funds...
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External sources for financing Pearlparadise.com
Let’s use Portia as an ongoing example. Portia can consider using external financing, which refers to funds invested by outside investors and lenders. External financing is divided into equity and debt...
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