StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Fundamental Elements of Business - Essay Example

Cite this document
Summary
In the paper “Fundamental Elements of Business,” the author analyzes the cost of equity and the cost of debt. Cost of capital is the opportunity cost of the funds employed as a result of an investment decision. It is the rate of return that a business could earn if it chose another investment risk…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER92% of users find it useful
Fundamental Elements of Business
Read Text Preview

Extract of sample "Fundamental Elements of Business"

It basically involves the rising funds through interests which not mount pressure on the organization. More pronounced is the fact that the cost of equity gives the business organization a sense of expression which allows the organization room to go to all ends to acquire funds. They are not restricted by debt or anything. Disadvantages of cost of equity. If a company is successful, the higher the cost of equity will definitely leave the company little. There is no stipulated cost of equity; it, therefore, depends on the interest rate which renders the company rather helpless.

In this case, the cost of equity of a company puts the organization in the position of always requiring votes from shareholders before taking certain decisions Advantages of cost of debt "wise use of debt may lower firms weighted average cost of capital (WACC) during inflation debt is repaid with 'cheap dollars'". In this case, raising debt capital is easier and less complicated because the company is not required to comply with state, federal security laws, and regulations. Disadvantages of cost of debt "Interest and principal must always be met when due regardless of a firm's financial position, also a poor use of debt may lower a firm's stock price.

It is interesting to note the fact that unlike equity debt must at some point be repaid."(Abraham M 98.) In an attempt to calculate the cost of capital for a firm -Danny's textile company. The following data represent the position and dealings of the company for a few years. PRICE20056.50%4.00%1.5%20045.20%4.00%1.00%20034.50%3.00%1.5% Now in an attempt to calculate the cost of capital for Danny's company using, first, the cost of capital. The following formula is used since you must first consider the pre-tax cost of debt which is; Risk-free rate + default spread.

Which is = 6.50% + 1.50% = 8.00% (1 - 0) = 8.00%The firm is paying no tax currently. Now cost of equity = tax free rate + default spread (4.00%) 6.50% + 1.60 (4.00%) = 12.90% Cost of debt = risk free rate + retail price (default spread) 6.50 % + 1.50 % (d. s) =8.00 Market value of debt = $ 349 mil (12%) Market value of equity $84/ share x 340.79 mil/share = $28.626mil (98.8%). Cost of capital is. = 12.9 % (.988) + 8.00 %( 1 - 0) (.012) =12.84% The above example displays the cost of capital of Danny's textile company using cost of debt and cost of equity.

However, in reaching or finding out the status of a company it is advisable to take a critical look at the following features in a company. The cash flow; which reveals a company's amount of capital involved in the running of the company and the people involved. The turnover; is a statement of the current financial position of the company. The profit a company makes over a period of time also informs a company's status of course if a company does not at the end of its year produce the amount of money it invested it's in bad shape.

Effectiveness of the management, which is the competence of the management.the ability of the management to bring in new ideas for development. The question here is - when was the last time those managers brought in a working and successful idea.

Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Fundamental Elements of Business Essay Example | Topics and Well Written Essays - 750 words - StudentShare, n.d.)
Fundamental Elements of Business Essay Example | Topics and Well Written Essays - 750 words - StudentShare. https://studentshare.org/business/1527227-fundamental-elements-of-business
(Fundamental Elements of Business Essay Example | Topics and Well Written Essays - 750 Words - StudentShare)
Fundamental Elements of Business Essay Example | Topics and Well Written Essays - 750 Words - StudentShare. https://studentshare.org/business/1527227-fundamental-elements-of-business.
“Fundamental Elements of Business Essay Example | Topics and Well Written Essays - 750 Words - StudentShare”. https://studentshare.org/business/1527227-fundamental-elements-of-business.
  • Cited: 0 times

CHECK THESE SAMPLES OF Fundamental Elements of Business

Sociological Paradigms and Organisational Analysis

Name Date Class Section/# Reading Log 1: “Sociological Paradigms and Organisational Analysis: elements of the Sociology of Corporate Life” Element1: identifying the main ideas articulated in the reading.... 100 words ) Burrel and Morgan's “Sociological Paradigms and Organisational Analysis: elements of the Sociology of Corporate Life” puts forth the idea that organisational behaviour within companies can be quantified/qualified and studied in the same way that the social sciences quantify/qualify current research in their respective fields....
18 Pages (4500 words) Essay

Relationship between Business Architecture and Innovation

Furthermore, the role of business architecture in sustaining competitive advantage is included in the discussion.... Thus, both of business's external and internal environments are momentarily transforming from time to time.... In this paper, Relationship between business Architecture and Innovation, the proponent tries to analyse the relationship between business architecture and innovation.... In this paper, the proponent tries to analyse the relationship between business architecture and innovation....
8 Pages (2000 words) Essay

Element Silver

The Carthaginians took hold of those silver mines and would pay the Romans from the business done with the silver mines.... Element Silver: The Moon on Earth Silver is one of those elements that have been known to the mankind since ancient times.... The cost-effectiveness of silver in comparison to other precious elements like platinum and gold makes it is one of the best and widely used ornamental elements.... The unique properties of silver that include but are not limited to its malleability, ductility, strength, thermal conductivity, electrical conductivity, high reflectance of light, sensitivity to light, and high endurance to extreme temperatures makes silver one of the most important and commonly used elements known....
3 Pages (750 words) Book Report/Review

Standard Approaches for Managing Projects

The approach is almost a reflection of the United States' version but identifies 52 subjects that are considered in seven elements of project management.... ndards, it is distinct and offers elements such as “customer focus, management responsibility,” role of stakeholders to a project, quality, and periodic improvements during a project's lifestyle (Zarafani 2011, 40)....
6 Pages (1500 words) Assignment

The Concept of Corporate Social Responsibility by Friedman and Freeman

Stakeholders' interests are Fundamental Elements of Business, as they continually affect numerous business activities.... Friedman describes the purpose of business as that of utilising the available resources and engaging in activities aimed at increasing company profits.... Corporate Social Responsibility Corporate social responsibility has been identified as a model of self-regulation within the business environment.... The inclusion of various components of this model involves the process of self-monitoring a business, and is aimed at ensuring compliance with business law, norms and the desired industrial standards....
5 Pages (1250 words) Research Paper

Marketing Fundamental

hellip; Marketing is a key concept of business.... The report paper "Marketing Fundamental" is purposed to discuss about several marketing fundamental elements.... Marketing is the business action of promoting and selling various products and services through significant market research and advertising.... Marketing fundamental is basically an overall concept of marketing and several marketing strategies that are developed and implemented by the organizations in order to maintain effective business growth rate....
3 Pages (750 words) Assignment

Fundamental Elements of Kimpton Hotels' Strategy

The study “fundamental elements of Kimpton Hotels' Strategy” presents SWOT analysis and the Earth care program of Kimpton Hotels, implementation of the latter, other key success factors of the Kimpton group - price segmentation, customer segmentation, global presence, and brand management, etc.... undamental elements of Kimpton Hotels' strategy: The fundamental elements of Kimpton Hotels' strategy are care, comfort, style, flavor, and fun.... Kimpton has many unique programs like Global business program, Kimpton In Touch, Kimpton Cares, Women In Touch, Earth care program, LGBT, Shop Kimpton Style, etc....
9 Pages (2250 words) Case Study

Organizational change

The method remains much focused on the interpersonal situations through the utilisation of three ever-present elements of content, process and structure (Anderson & Anderson 2001).... Creation of a high performance organisation would therefore include achievement of a balance between the resources utilised in enhancing these three fundamental elements.... This seeks to analyse and understand these elements in a great extend before engaging in the proposed implementation of change....
8 Pages (2000 words) Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us