Introduction The Capital Asset Pricing Model can be referred to as a tool that describes the existing relationship between systematic risk and expected return for assets, including stocks. It is used in the field of finance in order to price securities that have a higher risk profile, in addition to generating expected returns for assets, …
What are Capital Assets Pricing Models? Overview, Formula, Example Read More »
Business Risks can be defined as factors that a business faces because of the risk of the business failing or losing out on its profitability. Businesses must be aware of these risks because they need to create a proper hedging strategy to help them with these particular risks, to ensure that they can sustain themselves …
Introduction In order to finance operations, a business has two main options, equity or debt. The mixture of equity and debt finance is referred to as the Capital Structure of the company. As a matter of fact, it can be seen that capital structure is taken very seriously by companies because it has a huge …
Why Would A Company Choose Equity Financing Over Debt Financing? Read More »
Introduction Business risks tend to be an increasingly important factor in determining the overall ability of the business to sustain and survive in the VUCA (Volatile, Uncertain, Complex, and Ambiguous) world. There are several risks that businesses need to equip themselves against. However, in this regard, a couple of risks are more relevant to the …
What is a Systematic Business Risk? Definition and How Can A Business Mitigate It? Read More »
Introduction: Business Risk can be defined as the risks that can adversely impact the business by lowering profitability or impacting its market share. Therefore, this is something that needs to be taken seriously by the business, to ensure that they survive in the already competitive business landscape. In this regard, it is quite rudimentary for …
What is an Unsystematic Business Risk? Definition, Factories, How to Hedges It? Read More »
The Weighted Average Cost of Capital (WACC) is the required rate of return on a business organization. A business organization usually compares a new project’s Internal Rate of Return (IRR) against the organization’s WACC. So, WACC is the minimum rate for an organization to accept an investment project. Despite many advantages, the WACC has many …
Limitations of the Weighted Average Cost of Capital Read More »
There are some drawbacks of the Dividend Valuation Models which include factors like the difficulty of perfect projections and the assumptions of income from dividend. Although the principle behind the model is simple but applying the theory is challenging. The limitations of Dividend valuation Models are described below: The reality is that in some companies …
Limitation of Dividend Valuation Models: List of Limitation Read More »
The weighted average cost of capital (WACC) is the rate expected to be calculated by a company in which each category of capital is weighted proportionately. Different types of sources that are included in the WACC calculation are bonds, common stock, preferred stock, warrants, options, and other long-term debts. When calculating the present value of …
Advantages of the Weighted Average Cost of Capital Read More »
When an investor pays for buying common stock, he expects to receive future cash flows in the form of dividends. When the stock is sold, the investor expects to receive the value of the stock. It is difficult to determine the value of the common stock because the future cash flows generated by dividends are …
Dividend discount model is a quantitative method which is used to value a company’s stock price based on the theory that the current price of a stock equals the total of all of the company’s future dividends when discounted back to their present value. If the value from the dividend discount model is higher than …
