Capital Budgeting and Capital Structure

The long-term strategic goals as well as the budgeting process of a company need to be in place before authorization of capital expenditures. Useful in investment decisions.

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Capital budgeting is the process by which investors determine the value of a potential investment project.

. The meaning of Capital structure can be described as the arrangement of capital by using different sources of long term funds which consists of two broad types equity and debt. Most forms of capital equipment are customized to meet specific company requirements and needs. Credit Rating March 10 2022.

Optimal capital structure implies that the cost of capital is minimum at a particular ratio of debt and equity and the firms value is maximum. Working capital should be used in conjunction with other financial analysis formulas not by itself. Capital Budgeting Multiple Choice Questions 1.

Capital budgeting refers to the decision-making process that companies follow with regard to which capital-intensive projects they should pursue. Capital budgeting is a very important tool in finance but it comes with merits and demerits. The cost of capital is useful in capital budgeting decisions.

The capital structure is how a firm finances its overall operations and growth by using different sources of funds. Modigliani and Miller Approach MM Approach It is a capital structure theory named after Franco Modigliani and Merton Miller. Tahoma Arial Calibri Times New Roman Wingdings Rockwell Arial Narrow Symbol Office Theme Slide 1 Learning Goals Factors Affecting the Cost of Capital Slide 4 Slide 5 Slide 6 Slide 7 Slide 8 Slide 9 Slide 10 Slide 11 Slide 12 Slide 13 Slide 14 Slide 15 Slide 16 Slide 17 Slide 18 Slide 19 Slide 20 Slide 21 Slide 22 Slide 23 Marginal Cost of.

These investment opportunities could be for new plant machinery factory facilities construction of a building etc. Such capital-intensive projects could be anything from opening a new factory to a significant workforce expansion entering a new market or the research and development of new products. Types of Mergers March 12 2022.

Working capital is the amount of money a company has left over after subtracting current liabilities from current assets. A Investment Decision B Working Capital Management C Marketing. Capital Budgeting is a part of.

Capital Budgeting deals with. For more details Traditional Approach. A Long-term Decisions B Short-term Decisions C Both a and b.

Pandey defines capital budgeting decision as the firms decision to invest its current funds most efficiently in the long term assets in anticipation of an expected flow of benefits over a series of years. The three most common approaches to project selection are payback period PB internal. Debt comes in the form of bond issues or long-term notes.

Working capital tells you if a company can pay its short-term debts and have money left over for operations and growth. Capital budgeting is largely used for long-term investment opportunities whose tenure is more than a year and fetches returns over several subsequent years. Factors Determining Capital Structure April 25 2022.

The different types of funds that are raised by a firm include preference shares equity shares retained earnings long-term loans etc. In various methods of capital budgeting the cost of capital is the key factor used to select. MM theory proposed two.

Capital expenditures are often difficult to reverse without the company incurring losses. Firms choose projects that give a satisfactory return on investment which would in no case be less than the cost of capital incurred for financing.

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