can someone help answer this questions Read Ch.70 Whatis the connection between
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can someone help answer this questions
Read Ch.70 Whatis the connection between the value of shares and dividends? Dividend payment of dividend is the part of the earnings of the company paid out to its shareholders. Thus the to is retention. Retained camings increases the sustainable growth of the retention. How the value of shares is related to the cost of capital? Read Ch. 9 of. How to make a successful long-term investment decision? The criteria and techniques used to evaluate a capital project Read Ch. 11 . How to calculate risk and cost in capital projects and what is the reason for the calculation? The process and sources used to raise capital Read Ch. 16 How the company's ability to repay a loan lowers capital costs. . How raising debtlevels increases the value of the firm. . Why companies should avoid reaching their highest level of debtExplanation / Answer
Dividends:
This is the portion of net income which is distributed among the outstanding shareholders. It reduces the value of shares because the amount of dividends reduces the retained earnings, which is a part of total equity value.
Cost of capital:
This is the amount expenses in terms of interest and financing for raising funds (like bank loan, issue of debentures, etc). If such cost is high the company would go for equity financing, which increases the value of shares. If such cost is low the company would go for debt financing, which decreases the value of shares. Therefore, there is inverse effect.
Investment:
Long-term decision in such case should be made on time value of money. Money gets depreciated as the time goes on; what we earn 10 years from now may not have same purchasing power as it today. Such depreciated value of returns in future years must exceeds the current cash outflows for accepting the project.
Capital project:
Payback period: This is the number of periods of recovering the initial investments. Shorter period of recovery is desirable for accepting a project.
Accounting rate of return: This is the ratio of net income on the average investments. Higher rate of return is considered for a project acceptance.
Net present value (NPV): This is the difference of discounted future cash flows and the initial investments. A positive NPV is required for accepting a project.
Internal rate of return: This is the rate of return at which NPV is 0. The rate must be higher than the hurdle rate for the project acceptance.
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