LASA 2 Capital Budgeting Techniques
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NAME: NAME OF INSTRUCTOR: COURSE: DATE: INSTITUTION AFFILIATION: Capital budgeting involves the determination of the feasibility of long-term investments on new project, property, or equipment. It consists of the following techniques: payback period, discounted payback period, NPV, Accounting rate of return, IRR, and profitability index. Cost of new equity This is the cost of new equity including the flotation cost of the newly issued equity. Flotation cost involves the cost incurred by the company to the banks for the services rendered to the public. Thus flotation cost is greater than the cost of equity. To determine the cost of equity we need to calculate the discounted dividend, whereas flotation cost is given as a percentage of the price issue of the new equity....