Financial Management: Cost of Capital, Capital Structure, Investment Appraisal Techniques

Management

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Question 1- Cost of Capital and Capital Structure......................................................................1
a. Cost of equity...........................................................................................................................1
WACC with Book value and Market Value................................................................................3
b. Assessment of Overall WACC Cost of Capital.......................................................................4
c. Interpretations..........................................................................................................................7
d. There is a link between the company's IRR and WACC classification...................................8
Question 2- Investment Appraisal Techniques............................................................................8
Accounting Rate of Return..........................................................................................................9
b. Organizational Effects of Investment Appraisal Techniques................................................11
c. Benefits and Disadvantages of Capital Assessment Technique in the Sector.......................13
CONCLUSION..............................................................................................................................14
REFERENCES..............................................................................................................................15

INTRODUCTION
Financial management is the branch of business that focuses on costs, earnings, funds, and
debts (Alawattage and Wickramasinghe, 2018). Financial management is a management function
wherein the director is in charge of conceptualization, implementation, coordination, regulation,
and evaluation. In ability to execute a business company efficiently, the management must have
a thorough knowledge of fiscal management. Financial authorities have involved incorporating
management strategies into the company's investment tools as well as playing a key role in
budgeting control.
MAIN BODY
Question 1- Cost of Capital and Capital Structure
a. Cost of equity
Cost of equity:
We know,
Given, = Cost of Equity
D1= Most Recent Dividend= 0.28*(1+0.06)= 0.30
Po= Market Value per share= 2.65
F= flotation cost = 0
G= Growth Rate of dividend
0.21 =0.28
0r,
Or, g= 0.0587 or 6%
So,