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 …
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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 …
Definition The market value of debt is the price or amount that an investor is willing to pay to buy a company’s debt instrument. This amount is usually different from the book value present in the company statement of financial position. Alternatively, it is the cost of replacing the debt if the company replaces it …
How to Calculate the Market Value of Debt? (Definition, Formula, and Example) Read More »
Conversion premium is the term used in the financial market in connection with convertible securities. Thus, to understand the conversion premium, the reader should have a clear concept of convertible securities. Convertible securities As the name suggests, conversion securities are the select type of securities, “which are convertible into something else.” What that “something else” …
What is the Conversion Premium? And How Issuer Uses Conversion Premium? Read More »
Definition: A redeemable debt, or callable debt, is a bond that an issuer can repay before its maturity. The issuer usually pays a premium to the investor when a debt is redeemed. The borrower generally has to pay a premium or fee to the holder of bonds on debt redemption. A callable bond helps the …
What is a Redeemable Debt? Definition, Advantages, Disadvantages, Pros, and Con Read More »
Definition Irredeemable debt stands for debt with no maturity date and pays regular interest rates for an unlimited time. Theoretically, we presume that the debt’s nominal (par) value is never reimbursed to the debt holders. Instead, they get in return a benefit from an infinite number of coupons or interest payments. Irredeemable debt is also …
What is an Irredeemable Debt? Definition, Explanation, Examples, And More Read More »
For an individual deciding to invest his savings, the decision on where to invest is quite tricky. He may choose to invest in shares, bonds, stocks, and many other options. However, for a new investor, choosing the bond option is beneficial as no expert analysis is required for it, and being definite investments, it carries …
