Get premium membership and access questions with answers, video lessons as well as revision papers.
I. The cost of equity capital
It is the minimum rate of return required on all projects financed by common equity capital so as to
maintain the market value of the shares at the current level. It is the discount rate that equates the
present value of the expected divided to the current price of the shares.
II. Cost of retained earning (kre)
In (kre) There are two sources of common equity capital namely; external and retained earnings. Both are
first provided by the ordinary shareholders and their costs are calculated in the same way. The
only difference is that cost of retained earning does not involve floatation cost.
III. Cost of preference shares.
This is the minimum rate of return required by investors in preference capital. It is the discount
rate that equates the present value of cash inflows expected from the preference shares to the
current market price of the shares.
IV. Cost of debt
This is the minimum rate of return required by the providers of debt finance. It is the discount
rate that equates the present value of cash inflows expected from the debt instrument to the
current market price of the debt security.
NatalieR answered the question on February 9, 2022 at 12:23
- Define Profitability Index (PI)/Cost Benefit Ratio.(Solved)
Define Profitability Index (PI)/ Cost Benefit Ratio.
Date posted: February 9, 2022. Answers (1)
- Briefly explain Advantages of IRR in Financial Management.(Solved)
Briefly explain Advantages of IRR in Financial Management.
Date posted: February 9, 2022. Answers (1)
- Using the trial and error Method, outline the Steps in the calculation of IRR (Solved)
Using the trial and error Method, outline the Steps in the calculation of IRR
Date posted: February 9, 2022. Answers (1)
- What are the Advantages and disadvantages of using NPV to assess the viability of a venture?(Solved)
What are the Advantages and disadvantages of using NPV to assess the viability of a venture?
Date posted: February 9, 2022. Answers (1)
- Listing examples in each, state 2 methods of evaluating cash flows(Solved)
Listing examples in each, state 2 methods of evaluating cash flows
Date posted: February 9, 2022. Answers (1)
- List the requirements which need to be fulfilled by methods used to assess the viability of an investment in capital budgeting(Solved)
List the requirements which need to be fulfilled by methods used to assess the viability of an investment in capital budgeting
Date posted: February 9, 2022. Answers (1)
- Discuss 3 Classification of Investments(Solved)
Discuss 3 Classification of Investments
Date posted: February 9, 2022. Answers (1)
- Use the figure below to Calculate Quick (or Acid-Test) Ratio.
(Solved)
Date posted: February 9, 2022. Answers (1)
- Given that current ratio of XYZ Company in the year 2001 is 1.31times, and its current liability value is Ksh.540 Calculate the current asset value...(Solved)
Given that current ratio of XYZ Company in the year 2001 is 1.31times, and its current liability value is Ksh.540 Calculate the current asset value of XYZ's company.
Date posted: February 9, 2022. Answers (1)
- Discuss the term Ex-dividends(Solved)
Discuss the term Ex-dividend
Date posted: February 9, 2022. Answers (1)
- Define par value as used in financial management(Solved)
Define par value as used in financial management.
Date posted: February 9, 2022. Answers (1)
- List the advantages and disadvantages of quotations of companies in finance management(Solved)
List the advantages and disadvantages of quotations of companies in finance management
Date posted: February 9, 2022. Answers (1)
- List and Explain Members of the stock exchange(Solved)
List and Explain 2 Members of the stock exchange
Date posted: February 9, 2022. Answers (1)
- Define stock market
(Solved)
Define stock market
Date posted: February 9, 2022. Answers (1)
- Briefly explain the Roles of the Financial System in the Economy(Solved)
Briefly explain the Roles of the Financial System in the Economy.
Date posted: February 9, 2022. Answers (1)
- List four conditions for capital(financial Lease)(Solved)
List four conditions for capital(financial Lease)
Date posted: February 9, 2022. Answers (1)
- With relevant examples of where they are applied, explain two types of leases (Solved)
With relevant examples of where they are applied, explain two types of leases
Date posted: February 9, 2022. Answers (1)
- Outline 4 features of a valid bill of exchange(Solved)
Outline 4 features of a valid bill of exchange
Date posted: February 9, 2022. Answers (1)
- List 5 type of finance which is obtained from persons other than actual owners of the company. (Solved)
List 5 type of finance which is obtained from persons other than actual owners of the company.
Date posted: February 9, 2022. Answers (1)
- List and discuss Features of Bonds in finance management.(Solved)
List and discuss Features of Bonds in finance management.
Date posted: February 9, 2022. Answers (1)