Question

How do I figure out the cost of capital? The problem tells me it is 14%,...

How do I figure out the cost of capital? The problem tells me it is 14%, but I don't understand where the decimals come from

Introduction to corporate finance

Homework Answers

Answer #1

cost of capital is one of the decisions making parameters in capital budgeting problems. Specifically it is required to calculate the NPV i,e Net present value of the firm.

We have to discount all future cash flows using the cost of capital to get the present value of cash flows

PV of Future cash flows, ( Assuming Project is for 03 Years)

Here C1 = Cash Flow for Year 1

C2 = Cash Flow for Year 2

C3 = Cash Flow for Year3

r = Cost of Capital for Your example it is 14% = 14% = 14 / 100 = 0.14

So for Denominator terms we always use 1+r as a formula . So 1+r = 1 + 0.14 = 1.14

Now , PV of Future cash flows

converting into decimal Just we have to divide Interest Rate by 100 = r / 100 = 14 / 100 = 0.14

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
How do I figure out the opportunity cost of down payment? What is the opportunity cost...
How do I figure out the opportunity cost of down payment? What is the opportunity cost rate of a $22,106 loan with $5000 down?
I have a physics problem that gives me a projectile launched. It tells me the angle...
I have a physics problem that gives me a projectile launched. It tells me the angle above horizontal, the MINIMUM speed while in flight, and the amount of meters the ball traveled when it lands. The question asks for max height. What's tripping me up is this MINIMUM velocity. Where on the projectile is the velocity a minimum. I was thinking the minimum velocity would be at the highest point, because at the highest point the velocity is 0, however,...
I am trying to figure out how to find the test statistic using Excel. I understand...
I am trying to figure out how to find the test statistic using Excel. I understand the formula- that I need to use parameter 'p' and 'normal distribution' ….z= sample proportion and minus the 'population portion' then we divide p*q and divide n -sample size. I understand how to populate the data in the formula. I just can't figure out how to solve this using Excel. (my only option with my class) I need step by step directions if possible....
What is the best calculator to use for finance - I need to figure out at...
What is the best calculator to use for finance - I need to figure out at what how long an investment would take to get to a certain level (i.e. I have 25,000 saved at 2.5% interest, how long will take for me to have 300,000 saved at this rate.). Thank you in advance for any and all advise. Ruth
My boss has tasked me with trying to figure out the proportion of people who preferred...
My boss has tasked me with trying to figure out the proportion of people who preferred the online classes better than in person. She'd like me to be precise and have a margin of error of no more than 2%. She also wants to be 99% confident in her results. I, knowing that a lazy mathematician is the best mathematician, don't want to survey and crunch more numbers than i have to. Using the most conservative hypothesized proportion of .50,...
How do I get the P value for this problem? ... In a General Social Survey,...
How do I get the P value for this problem? ... In a General Social Survey, respondents working full time or part time reported how many hours they worked in the previous week at all jobs. The random sample of 1,729 produced a mean of 41.8 hours with a standard deviation of 14.6 hours. Using these data what would you conclude in a test of the following hypothesis? Ho: M = 40 hours Ha: M > 40 hours The teacher...
How do i figure out the MAGI for form 8962> Income is 55010 and adjusted income...
How do i figure out the MAGI for form 8962> Income is 55010 and adjusted income is 46943; self employment tax is 2115, heath deduct for self employed is 1152, alimony 4800 And deduction from 8814 is 1400
I would like assistance with problem 6.2, in statistics for managers using excel, 8th edition. I...
I would like assistance with problem 6.2, in statistics for managers using excel, 8th edition. I do not understand where the numbers came from in the formula? If P(z<1.84)-P( z-1.57) - .9671-.0582, where did .9671 and .0582 come from? How do you deduce those numbers from that formula?
please show me how to do this problem, and write out each step clearly and neatly....
please show me how to do this problem, and write out each step clearly and neatly. Thank you for your help! much appreciated. A typical laboratory centrifuge rotates at 4200 rpm. Test tubes have to be placed into a centrifuge very carefully because of the very large accelerations. i) What is the acceleration at the end of a test tube that is 10 cm from the axis of rotation? ii) For comparison, what is the magnitude of the acceleration a...
The correct answer doesn't interest me as much as understanding how to work out the problem....
The correct answer doesn't interest me as much as understanding how to work out the problem. In fact, according to other resources, the answers are D & B (in that order). I'm struggling to understand how to apply principles from microeconomics to work out the problem for myself. Any help would be much appreciated. -In order to produce 100 pairs of oven gloves, Marcia incurs an average total cost of $2.50 per pair. Marcia’s marginal cost is constant at $10.00...