Weighted-average cost of capital and capital structure Essay

Weighted- norm cost of keen and capital expression - Essay ExampleThese days the world community is fast coming to monetary value with the recessionary trends in almost all sectors. The corporate world is under severe pressure to running costs and do justice with the existing workforce.On the one hand companies ar trying to gain worth(predicate) support from the respective governments while on the other hand, all efforts are being made to do away with undue expenditures, and making the capital structure optimal in efficiency. Weighted Average speak to of Capital (WACC) is a fundamental approach towards making the capital structure the most advantageous for the company. No doubt companies might have undertaken such exercise many a times in the past, alone the manner in which the industry is experiencing the pressure in todays context, makes it all the more necessary for the companies to have a relook at some of the policies and procedures for calculating the WACC. Therefore, this study is an effort to analyze the procedures pick out for calculating the weighted average cost and how companies make use of such calculations in arriving at fathom financial decisions for their investment plans.Managers are supposed to make strategic moves on the basis of both external and internal analysis. They have to keep costs and manage money for the ongoing operations as well as for the futuristic investments. This could be in the form of preparing or reviewing budgets, expense reports, or travel authorizations. It may be cash management or sales management. For financial management, markets and environments are assessed. Internally, operating and financial capabilities of the company/ organization are cannistervas by using the hard facts, i.e. the financial statements, budgets etc.Investment decisions happen to be quite all-important(a) for a company and its business operations. Entrepreneurs often face the dilemma of adopting one type of capital structure as c ompared with alternatives available. There are a number of stakeholders involved in a business proposition. besides the financial resources, the enterprise requires the support of human capital, intellectual capital, relationship capital etc. (Fletcher et al, 2003). While the efforts for optimizing other types of capital requires more of intellectual capital and internal control, the financial decisions for the company require a sound understanding of the fiscal position prevailing within the country/ region, the market position and the strategies being adopted by the competitive companies. The Weighted Average Cost of Capital therefore proves to be a practised tool in dealing with the financial decision and finding out the rate of returns that the company can expect in due course. The long term planning decisions taken with the help of WACC can excessively be reviewed during the course of operations, if it is found out that the actual figures are widely at variance with the pas s judgment rates of returns. The calculations of weighted average cost of capital involves according proportionate weight to each category of capital sources like, common stock, preferred stock, bonds and any other long-term debt1.Managerial economics demands analysis of true and actual costs. In the cost-benefit analysis opportunity cost also emphasizes the role of judgment. Computerized calculation can be done while analyzing the financial details of ones own company,