Cost Of Capital

NameUniversityCourseDateCapital is one of the most important resources required to run an validation . It comprises of debt and equity . The follow of big(p) for a firm is a weighted sum of the cost of equity and cost of debt (F Modigliani and M . Miller , 38 . The senior oversight is charged with the righteousness of maximizing the sh areholders wealth among other objectives . To accomplish this , the cost of capital is a major determinant . The board of directors is the overseeing body take by br the shareholders . In GE management news report and analysis , Debt continues to receive the highest ratings of the major rating agencies such as S br.The rating is Capital (long -term rating AAA /abdominal aortic aneurysm :short - term rating A-1 /p-1 . Diversification and risk management strategies enabled the company to grow revenues and earnings to record levels during that challenging time . Global fluidity is providing the company with marketplace opportunities and at the said(prenominal) time reducing risk spreads . Proprietary analytic models are employed to allocate capital to financing activities to identify the primary winding sources of risk and to measure the amount of risk to take on each product line . This approach enables the company to baffle early signals that monitor changes in risk affecting portfolio performance and actively manage the portfolioGe and GECS manage a variety of risks including liquidity , credit and market risksLiquidity risk is the risk of being unable(p) to accommodate liability maturities , fund asset growth and collide with contractual obligations done access to funding at healthy market placeCredit risk is the risk of financial loss arising from a customer or counterparty failure to meet its contractual obligations objet dart market risk is the potential loss in appraise of investment and other asset and liability portfolios including financial instruments and rest period values of leased assets .

This risk is cause by changes in market variables such as interest and currency exchange rates and equity and commodity pricesManagement is concerned with cost of capital for confused reasons such asIt readys the proper financing mix (Bernheim , B . Douglas , and joke B . Shoven . 72 . A firm s capital social organisation is made up of equity and debt in different proportions . by means of the use of the cost of capital , the management can determine the optimal capital structureEnjoy tax advantages-this is due to debt progeny . Debt issuance is mostly associated with a certain form of tax savings computed using the prevailing corporate tax rateCost of capital is in addition an indicator of growth and a proper yardstick used by the owners to evaluate the management s performanceCost of capital impacts the ability of an governing body to borrow or repay its existing debt obligations . This is basically through tax savings on the issuance of debt . It will be cheaper to issue debt as opposed to new equity for the firms recording profits . However at some point , the cost of effect new debt will be greater than that of issuing new equity due to the default...If you want to get a full essay, order it on our website: Orderessay

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