The top managers at Latoya's Lanterns are evaluating two new projects: Project A involves a nationwide expansion and marketing campaign and Project B involves investing in the research and design team and licensing the best new lanterns to other large companies. The head of sales advocates for Project A; she says, "The revenue on this proposal is huge! It'll bring in way more money for the company!" The head of R&D advocates for Project B; she says "Yes, A has a high revenue, but up front costs are too high and there's a lot more uncertainty about how many sales we'll make, especially further into the future. Project B is smaller, but it has a higher expected NPV." Answer the following questions. From a finance perspective, which manager has the better argument, Sales or R&D? Why? Which project would you probably support? What financial information would you want to see before picking a project to support? What non-finance information might influence your decision in favor of the other project?
Cost of Debt, Cost of Preferred Stock
This article deals with the estimation of the value of capital and its components. we'll find out how to estimate the value of debt, the value of preferred shares , and therefore the cost of common shares . we will also determine the way to compute the load of every cost of the capital component then they're going to estimate the general cost of capital. The cost of capital refers to the return rate that an organization gives to its investors. If an organization doesn’t provide enough return, economic process will decrease the costs of their stock and bonds to revive the balance. A firm’s long-run and short-run financial decisions are linked to every other by the assistance of the firm’s cost of capital.
Cost of Common Stock
Common stock is a type of security/instrument issued to Equity shareholders of the Company. These are commonly known as equity shares in India. It is also called ‘Common equity
The top managers at Latoya's Lanterns are evaluating two new projects: Project A involves a nationwide expansion and marketing campaign and Project B involves investing in the research and design team and licensing the best new lanterns to other large companies. The head of sales advocates for Project A; she says, "The revenue on this proposal is huge! It'll bring in way more money for the company!" The head of R&D advocates for Project B; she says "Yes, A has a high revenue, but up front costs are too high and there's a lot more uncertainty about how many sales we'll make, especially further into the future. Project B is smaller, but it has a higher expected NPV."
Answer the following questions.
- From a finance perspective, which manager has the better argument, Sales or R&D? Why?
- Which project would you probably support?
- What financial information would you want to see before picking a project to support?
- What non-finance information might influence your decision in favor of the other project?
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