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x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000
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x LTD., was formed to take over the business of x and y firm carrying ...
Computation of Cost of Capital in x LTD.
Cost of capital is the cost incurred by the company to acquire funds from various sources. It is an important aspect of financial management as it determines the minimum return that the company should earn to cover its cost of capital. The cost of capital is calculated by taking into account various factors such as the cost of debt, cost of equity, and the weighted average cost of capital (WACC).
Calculation of Cost of Capital:
1. Cost of Debt: The cost of debt is the interest paid on the company's debt. It can be calculated by dividing the interest paid by the total amount of debt. In this case, the company has bills payable of 22000, which is the only debt. Therefore, the cost of debt would be the interest paid on bills payable divided by 22000.
2. Cost of Equity: The cost of equity is the return required by the shareholders for investing in the company. It can be calculated using the Capital Asset Pricing Model (CAPM). The formula for CAPM is:
Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
3. WACC: WACC is the weighted average cost of capital, which is the average cost of all the sources of funds used by the company. It is calculated by multiplying the cost of each source of funds by its proportion in the capital structure and then adding them up.
WACC = (Cost of Debt * Proportion of Debt) + (Cost of Equity * Proportion of Equity)
Conclusion:
In conclusion, the cost of capital for x LTD. can be calculated by computing the cost of debt, cost of equity, and WACC. By knowing the cost of capital, the company can make informed decisions regarding investment opportunities and financing options.
Cost of capital is the cost incurred by the company to acquire funds from various sources. It is an important aspect of financial management as it determines the minimum return that the company should earn to cover its cost of capital. The cost of capital is calculated by taking into account various factors such as the cost of debt, cost of equity, and the weighted average cost of capital (WACC).
Calculation of Cost of Capital:
1. Cost of Debt: The cost of debt is the interest paid on the company's debt. It can be calculated by dividing the interest paid by the total amount of debt. In this case, the company has bills payable of 22000, which is the only debt. Therefore, the cost of debt would be the interest paid on bills payable divided by 22000.
2. Cost of Equity: The cost of equity is the return required by the shareholders for investing in the company. It can be calculated using the Capital Asset Pricing Model (CAPM). The formula for CAPM is:
Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)
3. WACC: WACC is the weighted average cost of capital, which is the average cost of all the sources of funds used by the company. It is calculated by multiplying the cost of each source of funds by its proportion in the capital structure and then adding them up.
WACC = (Cost of Debt * Proportion of Debt) + (Cost of Equity * Proportion of Equity)
Conclusion:
In conclusion, the cost of capital for x LTD. can be calculated by computing the cost of debt, cost of equity, and WACC. By knowing the cost of capital, the company can make informed decisions regarding investment opportunities and financing options.
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x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000 Related: Computation of Cost of Capital, Accountancy and Financial management?
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x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000 Related: Computation of Cost of Capital, Accountancy and Financial management? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000 Related: Computation of Cost of Capital, Accountancy and Financial management? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000 Related: Computation of Cost of Capital, Accountancy and Financial management?.
x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000 Related: Computation of Cost of Capital, Accountancy and Financial management? for B Com 2024 is part of B Com preparation. The Question and answers have been prepared according to the B Com exam syllabus. Information about x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000 Related: Computation of Cost of Capital, Accountancy and Financial management? covers all topics & solutions for B Com 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for x LTD., was formed to take over the business of x and y firm carrying on business partnership. The balance sheet of the firm as on 31-12-2019. Liabilities:- sundry creditors- 65000; bills payable:- 22000; profit and loss account:- 43000; partners capitals:- x 200000; y 319000; Assets:- plant and machinery 260000; land and building 69000; stock 130000; investments 52000; Sundry debtors 138000 Related: Computation of Cost of Capital, Accountancy and Financial management?.
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