Which three actions lead to investment plan and its financing?
Decision to invest and establish an investment plan
Determination of the company's own financing
Definition of amounts and the search for complementary means of financing and preparation of the financial plan
Capital opportunity cost: CAPM (Capital Asset Pricing Model)
Rf = Risk-free remuneration rate
Rm = Average rate of return on the market portfolio
Ri = Minimum rate required to invest in the project i
Βi = Variability of the profitability of the investment in the project compared to the profitability of the market portfolio (Rm).
And Ri = Rf + (Rm – Rf)x βi
where
Cov ( Ri, Rm)
βi =
σ2m
Where σ2m is the variance of the profitability of the Market portfolio (Rm), which is by definition fully diversified.
Rf = Risikofreier Vergütungssatz
Rm = Durchschnittliche Rendite des Marktportfolios
Ri = Mindestsatz, der für die Investition in das Projekt i erforderlich ist
Βi = Variabilität der Rentabilität der Investition in das Projekt im Vergleich zur Rentabilität des Marktportfolios (Rm).
Und Ri = Rf + (Rm - Rf)x βi
wobei
Wobei σ2m die Varianz der Rentabilität des Marktportfolios (Rm) ist, das per Definition vollständig diversifiziert ist.
Weighted average cost of Capital – WACC
The WACC (Weighted Average Cost of Capital) is a financial metric that represents the average cost a company pays for its financing, including both equity (money from investors) and debt (money from loans).
Purpose:
WACC helps companies decide if an investment is worth pursuing.
A project must generate a return higher than the WACC to be profitable.
In simple terms, WACC is the "average price" a company pays to raise money for its operations or investments.
Where:
E: Equity (value of shares).
D: Debt (value of loans).
Re: Cost of equity.
Rd: Cost of debt.
Tc: Corporate tax rate.
Return on Equity RE
[Eigenkapitalrendite]
The formula ROE = r + (D/E) * (r - i) shows that increasing debt (D) can boost return on equity (ROE) if the return on investment (r) is higher than the interest rate on loans (i). Leverage amplifies equity returns as long as r > i.
How does increasing debt affect interest rates and equity risk?
Increasing debt raises the interest rate due to higher borrowing costs and increases equity risk, leading investors to demand a higher rate of return.
Mit zunehmender Verschuldung steigt der Zinssatz aufgrund höherer Kreditkosten und erhöht sich das Eigenkapitalrisiko, was die Anleger dazu veranlasst, eine höhere Rendite zu verlangen.
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