Posted in business on Dec 12th, 2008
The Oxford Reference (1997) defines the cost of capital as “the average costs of a company’s various types of capital” (para. 1). A company’s capital can take various forms such as stock, loans, and retained earnings. Cost of capital is most frequently represented as the weighted average cost of capital. This method combines the cost [...]
Posted in business on Dec 8th, 2008
Company X has recently been approached with the idea of purchasing new manufacturing equipment. The new equipment will require the investment of $1,300,000, but will result in incoming cash flows for the next five years. The finance department has generated the numbers for this capital budgeting project and set a number of requirements. Specifically, the [...]
Posted in business on Dec 5th, 2008
After doing a little analysis, you, the wily new division manager, decided that a small investment of $300,000 in a new product line could result in annual sales of over $150,000 for the next two years and $250,000 per year for the following three. With your numbers in tow, you met with the company’s Chief [...]
Posted in business on Dec 1st, 2008
As a new division manager for Company X, it is important to understand the role the finance department can play in shaping your decisions. For example, the finance department is responsible for spearheading financial planning for the upcoming year. The results of financial planning, especially the pro forma balance sheet, are invaluable tools in determining [...]
Posted in business on Nov 28th, 2008
There are two forms of financial planning that are extremely important in maintaining the health of an organization: cash planning and profit planning. Cash planning focuses on the development of the organization’s cash budget, while profit planning concerns the preparation of pro forma income statements. Although these two planning processes are vital in the development [...]