Business Finance Assignment Solved (Doc)

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Added on 2020-10-23

Business Finance Assignment Solved (Doc)

Added on 2020-10-23

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BUSINESS FINANCE

Table of ContentsINTRODUCTION ..........................................................................................................................3DISCUSSION .................................................................................................................................3Capital Asset pricing Model .......................................................................................................3Efficient capital market ..............................................................................................................4Assumptions for general dividend valuation model....................................................................4Net present value as capital budgeting tool ..............................................................................5Client's Investment ..........................................................................................................................51. Cost of equity ........................................................................................................................52. Weighted average cost of capital...........................................................................................63. Project evaluation ..................................................................................................................8CONCLUSION ...............................................................................................................................9REFERENCES .............................................................................................................................10

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INTRODUCTION Business finance refers to the sources and utilization of the funds in the organisation ineffective and efficient manner in order ton increase the profitability and performance of theorganisation. This assignment will provide information regarding capital assets pricing modelwhich is used for calculating the cost of equity. Moreover, it will involved the discussion on theefficient capital market and the importance of market efficiency for the financial managers. Also,It will contain the information regarding net present value through the client is able tounderstand the viability of the project. The assignment will also provide the informationregarding dividend valuation model.DISCUSSION Capital Asset pricing Model The capital asset pricing model is used in order to determine the required rate of returnfor the risky assets. This model describe the relationship between systematic risk and theexpected return associated with the assets. The capital assets pricing model provide that theinvestors must be compensated in two ways that is time value of money and the risk. Thismodel assist in identifying the risk and return associated with the asset. This model is used todecide what price should be paid for the assets or stock. the financial analyst uses the capitalassets pricing model in order to estimate the cost of shareholders equity (Burns and Dewhurst,2016). It is used to determine the pricing of risky securities , generating expected return forassets and for calculating cost of capital. It help in evaluating the return on assets bycomparing the price in which the investors should invest in order to generate higher return. It mean to determine the cost of equity in order to reduce the risk of the investors whileinvesting their funds in the less risk investment which can generate higher return. The capitalassets pricing model calculate the cost of equity on the basis of the risk associated with theinvestment and also include the risk free rate of return on the basis of which the investors areable to make decision regarding the investment (Jordà, Schularick and Taylor, 2016). Thecapital assets pricing model is effective way to identify the cost of equity as this method is easyand simple to calculate which help in provide understanding and knowledge of the betterinvestment project.

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