Value of WACC; dividend policies
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1. What are some of the reasons that the cost of capital differs from country to country? What are the drivers behind this?
2. What is the significance of the WACC and how is it used to determine a firm's value? How will the differences in corporate taxes between countries affect the WACC? What is the affect of the current international economic environment on a firm's WACC?
3. What are some different types of dividend policies? How can dividend policies be used as part of a wealth maximization strategy?
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The response addresses the queries posted in 1026 words with references.
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The response addresses the queries posted in 1026 words with references.
//Cost of capital is one of the most important determinants of the revenue earned from an investment. It is the opportunity cost of investment, I.e. The rate of return that could be earned by investing the same amount of money in some other alternatives with same level of risk. The following paragraph consist of a brief discussion on the major reasons for the difference in the cost of capital in different countries and also the drivers behind them as well//.
As mentioned, the cost of capital is one of the most important aspect, as it affects the decision making process, hence, it should need to be studied with adequate attention. The cost of capital differs from country to country, and there are various reasons for such difference in the cost of capital. One of the important reasons for the difference in the cost of capital is the different inflation rate that is prevalent across different countries. The inflation has a major impact on the cost of capital, as a higher rate of inflation would result into lower cost of capital and a lower rate of inflation would result into higher cost of capital (Jorgenson & Landau, 1993). In addition to the Inflation, the accounting estimates for the cost of capital that differs from country to country which is also a major reason for the difference in the cost of capital. In addition to this, there are basic risk differences between the countries that also lead to the different cost of capital as well (Halpern, 1997).
The major ...
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- MBA (IP), International Center for Internationa Business
- BBA, University of Rajasthan
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