Answer & Explanation:Let’s Discuss: “Applying the Concepts”:Please give us one example from your research, work, or personal life of an application of the material we have covered during this module.The finance topics that we are learning in this course have wide applications and implications. This discussion will provide you with an opportunity to apply the concepts that are relevant to you.
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Module 7
Project analysis & Cost of Capital
Project analysis
When evaluating investment decisions in a corporation we
need to understand our present cost structure and how the
actions we are taking will affect our future cost structure. We
need to project how our decisions will alter the current state
and if these alterations can be absorbed while increasing
profits.
In chapter 11 we will discuss the different types of costs; incremental, sunk, fixed,
variables and others. We will learn how to put together analysis and simulations to
project the impact of our decisions on the financial structure of the company.
More specifically, after studying this chapter you should be able to explain:
The basic types of costs and their definitions.
The concept of sunk and opportunity costs.
The difference between fixed and variable costs and how to fit these all
into models and simulations.
Cost of Capital
When evaluating investment decisions in a corporation we need to understand our
present cost of capital and how the actions we are taking will affect our future cost of
capital. Investors participate in our capital structure in two forms equity (stocks) and
debt (bonds/loans). The cost of these two items are relative to the risk inherent in our
company and the change of that risk over time as we acquire more debt or give away
more profits in the form of equity.
Chapter 14 will help you understand how to calculate and relate the cost of equity and
debt to the overall weighted average cost of capital.
More specifically, after studying this chapter you should be able to explain:
The basic types of financial management decisions and the role of the
financial manager in obtaining capital for investment in the company.
The concept of leverage and how it affects our cost of capital.
The difference between debt financing and equity financing on our total
capital structure.
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