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dividend yield or gordons modelthis model is used to determine the cost of various capital components in particular cost of equity - ke cost of
example of capital asset pricing modelkk ltd is an all equity firm whose beta factor is 12 the interest rate on t bills is currently at 85 and the
capital asset pricing model capmcapm is a methods that is used to establish the required rate of return of an investment provided a particular level
example of market modelillustrationfor the past five 5 years the mps and dps for xyz ltd were follows as 1998shs1999shs2000shs2001shs2002shsmps
market model - methods of computing cost of capitalthis model is utilized to establish the percentage cost of ordinary share capital cost of equity
risk adjusted discounting rate - methods of computing cost of capitalthis method is used to establish the discounting rate to be used for a provided
reasons for different interest rateinterest rates may differ in different market and market segment sincei size of the loan deposits above specific
importance of interest ratesthese are of a specifically relevance to a finance manager sincei they measure the cost of borrowingii interest rates in
interest rate levels and stock pricesinterest rates contain two effects on corporate profitsa since interest rate is a cost and like the higher the
determinants of required rate of return1risk free rate - this is the interest rate such would exist on default free securities like treasury bills
foreign trade balanceif the government buys or imports much more than it sells or exports there will be a trade deficit such will require
government budget deficitif the government spends much more than it gets in from tax revenue it runs a budget deficit this deficit should be covered
cbk - monetary policythe money supply in the economy has a main effect on both the rate of inflation and the level of economic activity the level of
tests of term structure of interest rates theoriesvarious tests have been conducted mainly in usa and they show that all the three 3 theories have
market segmentation theorythis theory states as the main investors lenders and borrowers are confined to a particular segment of the market and will
important factors for expectation theorythe following circumstances are essential for the expectation theory to holdi ideal capital markets exists
expectation theorythe theory states here that the yield curve depends on the expectation concerning with future inflation rates the rate on long-term
liquidity preference theorythis theory states that short term bonds are extremely favorable than long term bonds for two 2 purposes1 investors
term structure of interest ratesthe term structure of interest rate give details the relationship between the term to maturity and interest rates and
factors that influence the cost of finance1 terms of reference - if short term the cost is generally low and vice versa2 economic conditions
significance of cost of financethe cost of capital is significance since of its application in the following areas asi long-term investment decisions
cost of finance - capital structurethis is the price the company pays to retail and acquire finance to get finance a company will pay implicit costs
factors of capital structure1 availability of securities - this influences the companys employ of debt finance that means such if a company has
proforma balance sheetthis refers to the projected balance sheet at the finish of forecasting period the items in the proforma balance that vary
example of sales methodthe balance sheet of xyz ltd as on date 31st december 2002 is as following net fixed