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I NEED HELP WITH A RESPONSE TO THE POSTBELOW.

How do bonds provide financing to corporations for theircapital projects? Issuing bonds is the easiest mosteffective way to raise money to do the things needed to allow thecompany to grow without taking a loan from the bank with higherinterest rates. A investor basically loans the company the money inexchange for interest payments. Companies are more willing to issuea bond and pay a lower interest rate.

What are the key differences between using bonds tofinance capital projects and using stock for that purpose?The key difference is that with bonds companies can continue toissue all the bonds that they want just as long as they haveinvestors who are willing to invest the money for a certaininterest rate. When a company does this it does not have any impacton ownership and the way the company is operated or the sharesdistributed. With stocks you have to put up shares of the company,which will mean that the company brings in less money because ofthe sharing of the revenue with the stockholders of thecompany.

References

Smith, L. (2018, December 21). Why Companies Issue Bonds.Retrieved January 14, 2019, fromhttps://www.investopedia.com/articles/investing/062813/why-companies-issue-bonds.asp

The value of a bond is dependent primarily on twofactors. Name and explain these factors. The value of abond is dependent on the value of its cash flow in terms of thepresent value of the coupon payments and the present value of thepar value. The coupon changes according to the current interestrate. When the interest rate falls lower than the coupon rate thenthe value of the bond payment rises. The length of paymentsremaining before maturity is also a factor as it represents agreater or lesser portion of the value. The current value of a bondis always measured against the going interest rate, whichdetermines what will be paid out.

Compare and contrast the differences between stocks andbonds. The characteristics of bonds is that the valuerises and falls depending on interest rates, interest payment aretax deductible by the corporation, equity is not lost throughissuance, unpaid debt is a liability, can be issued at any time forany reason and the creditors have not voting powers. Thecharacteristics of stocks is that the value rises and fallsdepending on the value that the stock trades are at, dividends arenot tax deductible, loss of stock value creates no liability, canonly be issued one time, equity owners can control the company withvoting powers and stock issuance is based on transfer ofequity.

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Beverley Smith
Beverley SmithLv2
28 Sep 2019

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Take a look at and read this article that discusses the cost of capital. What are your thoughts? Elaborate and Explain

Capital for a small business is simply money. It is the financing for the small business or the money used to operate and buy assets. Cost of capital is the cost of obtaining that money or financing for the small business. The cost of capital is also called the hurdle rate.

Should very small businesses even worry about their cost of capital? The answer to that is absolutely yes! Even very small businesses need money to operate and that money is going to cost something. Companies want that cost to be as low as possible.

What is Capital?

Capital is the money businesses use for financing their operations. The cost of capital is simply the rent, or interest rate, it costs the business to obtain financing. In order to understand cost of capital, you must first understand the concept of capital. Capital for very small businesses may just be the supplier credit they rely on. For larger businesses, capital may be the supplier credit and longer term debt or liabilities, which are the firm's liabilities.

If a company is public or takes on investors, then capital will also include equity capital or common stock. Other equity accounts will be retained earnings, paid-in capital, perhaps preferred stock.

Why is Capital Important?

In order to build new plants, buy new equipment, develop new products, and upgrade informationtechnology, businesses have to have money or capital. For every decision like this, a business owner or Chief Financial Officer (CFO) has to decide if the return on the investment is greater than the cost of capital or the cost of the money it takes to invest in the project.

Business owners do not usually invest in new projects unless the return on the capital they invest in these projects is greater than or at least equal to the cost of the capital they have to use to finance these projects. Cost of capital is the key to all business decisions.

What is the Cost of Capital?

A company's cost of capital is simply the cost of money the company uses for financing. If a company only uses current liabilities and long-term debt to finance its operations, then it uses debt and the cost of capital is usually the interest rate on that debt.

If a company is public and has investors, then cost of capital gets more complicated. If the company only uses funds provided by investors, then the cost of capital is the cost of equity. Usually, this type of company has debt but it also finances with equity financing or money that investors supply. In this case, the cost of capital is the cost of debt and the cost of equity.

The combination of debt and equity financing for a company is the company's capital structure.

What is Return on Capital?

Return on capital is the amount of profit you earn out of a business or project as compared to the amount of capital you invested. The key to cost of capital for a company is that a company's return on capital must always equal or exceed the cost of capital for any project in which the firm wants to invest. In other words, the company's investment rate of return (return on capital) must equal or exceed their financing rate of return (cost of capital) in order for the firm to be profitable.

What Composes the Cost of Capital

One component of the cost of capital is the cost of debt financing. For larger businesses, debt usually means large loans or bonds. For very small companies, the debt can mean trade credit. For either, the cost of debt is the interest rate the company pays on debt.

Another component of the cost of capital is the cost of equity financing if your company is a public company; in other words, if you have investors in your company who provide money in exchange for an ownership stake in the company.

There are several components of the cost of equity capital. First, there is the cost of retained earnings or the money that the company invests back into the company, instead of paying outdividends. Next, there is the cost of new common stock or stock that the company issues to raise money. Last, the company may even issue preferred stock to raise money.

For very small firms, the cost of capital may be much simpler. There are advantages and disadvantages to both debt and equity financing, including cost, that any business owner must consider before adding them to the capital structure of the company. Very small firms may just useshort term debt, in which case we have to establish a cost for this capital component.

The Company's Weighted Average Cost of Capital

Once the business owner understands the concepts of capital and cost of capital, the next step is to understand weighted average cost of capital. Each capital component is a certain percentage of the company's capital structure. In order to arrive at the true cost of capital for a business firm, the owner must multiply the percentage of the company's capital structure for each component by the cost of that component and sum them.

Summary of Cost of Capital

Before a company can engage in buying assets or obtaining financing for its operations, it must make some determination of its cost of capital -- what it really costs the firm for the money it has to have to for all its financing. That cost of financing must never exceed its return on capital. Here is a cost of capital video series that you may find helpful. It helps put the return on capital and cost of capital in real world terms for you.

I need help with this problem i have. The company I chose was apple because i figured it would be the easiest. I know i listed the formulas, but i cant find any of the numbers. Can anyone possibly help? I need to know what numbers go in what formula.

Much appreciated.

Company Valuation

1. Analysis of WACC

a. Calculation of WACC for your company:

You will need to identify each component of the WACC formula and calculate the overall WACC.

The WACC formula for a company that uses debt and equity is as follows:

WACC = % Debt * Cost of Debt * (1 - Tax Rate) + % Equity * Cost of Equity

*You should use Yahoo! Finance and / or the company's most recent 10K report to identify all financial statement inputs. You can use the following guide for the inputs. The specific financial statement data are found on the relevant financial statement. Debt = Long-term Debt + Short-term Debt (on Yahoo! this is called, "Short/Current Long Term Debt")

Equity = Market Cap. (This is on the Key Statistics page in Yahoo! Finance)

% Debt = Debt / (Debt + Equity)

% Equity = 1 - % Debt

Cost of Debt = Interest Expense / Debt

Tax Rate = Income Tax Expense / Income Before Tax

Cost of Equity: Use the CAPM equation to calculate this

Cost of Equity = Risk free rate + Beta * (Market Risk Premium)

Risk free rate: look up the yield on 10 year US Treasury bonds

Beta: This is on the Key Statistics page in Yahoo! Finance

Market Risk Premium: Assume 11% minus the risk-free rate

b. Interpretation of WACC for Your Company

*Indicate what the WACC value you derived means for your company.

*What role does the WACC play for company managers when they are evaluating new projects to undertake?

*How would company managers and investors use the WACC for an overall company valuation analysis?

Question: How would you answer this students post with a paragraph or two with reference.

Dividends are corporate earnings passed on to shareholders. Since google is a growing tech company who is constantly trying to stay ahead of their competition, profits are better used within the company to fund new projects and ideas. By using income in this way, Google is investing in the success of their company thereby increasing the value of stockholder equity. The second piece of the puzzle is tax liability. Dividend tax is paid at the owner's marginal rate which could be up to 35%, and on the contrary, the sale of stock after holding it for one year is taxed at the capital gains tax of 15% (Fontinelle, 2016). It is also in the best interest of the shareholder to retain wealth and ownership in the company by holding the stock for at least one year before trading or selling to appreciate the tax savings. Google is the largest publicly traded company in the world with revenue of $66 billion in 2014 going up every year since 2002, and shares of stock are valued at $709.60 today. Much of Google's income is generated through advertising (Statista, 2016). The competitiveness of technology creates an environment where new ideas and projects must be pursued in order to retain shareholder value in the company.

Many mature companies do pay common stock cash dividends to entice people to purchase stock which provides the benefit of a constant income stream for the shareholder. Investors also see the payment of dividends as related to the strength of the business and that management has strong expectations for the company in the future (Fontinelle, 2016).

Investopedia. (2016). Why do some companies pay a divident when others do not? Retrieved from http://www.investopedia.com/ask/answers/12/why-do-some-companies-pay-a-dividend.asp

Statista. (2016). Annual revenue of google 2002-2014. Retrieved from http://www.investopedia.com/ask/answers/12/why-do-some-companies-pay-a-dividend.asp

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