What is Equity Cost of Capital?The "cost of equity" is related to the shareholder’s return. In general, the Cost of Equity is the shareholder’s required rate of return that makes the market value of share equal to anticipated dividends. The cost of equity, in other words, is the expense of ... Read More

The Accounting Rate of Return is an annual percentage of the average net income an asset is estimated to generate divided by the average capital cost. It is used in capital budgeting decisions in situations where companies decide whether to invest or not in an asset-based on net future earnings ... Read More

To check the feasibility of projects, investors and companies normally use the Net Present Value (NPV) and the Internal Rate of Return (IRR) methods. Each of these two techniques has different assumptions, including the assumption of reinvestment rate.Generally, NPV doesn’t have a reinvestment rate assumption, while IRR does have it. ... Read More

The Pure Play Technique is a frequently used method of determining the cost of a divisional project. It involves the following major steps −Identifying Comparable FirmsThe first step in the Pure Play Method is to find identical firms with similar features. In the real world, it is impossible to find ... Read More

Opportunity Cost is a term widely used in Finance and Economics. It is not found in Accounting because it is not an explicit cost paid out of the pocket. Rather, it is an implicit cost which is why Accounting does not include it. Opportunity cost is related to investment decisions. ... Read More

The terms "conventional projects" and "non-conventional projects" are derived from conventional and non-conventional cash flows. Therefore, it is necessary that we understand the difference between conventional cash flows and non-conventional cash flows.Conventional Cash FlowsConventional cash flow is a series of cash flows that go in one direction over time. If ... Read More

Businesses always need to know how much inventory is left and what is its worth. This is especially applicable to eCommerce firms. It is therefore of prime importance to calculate the inventory with the right inventory tracking method to manage the eCommerce demands and earn profits from them.There are many ... Read More

The payback method is a non-DCF method for investment evaluation. However, it is quite popular among economists and financial managers due to some virtues mentioned below −SimplicityAs the time value of money and discounted cash flow are not considered, payback is a simple standalone tool for the evaluation of investments. ... Read More

Both "cash flow" and "profit" are vitally important for businesses and there are distinctions and notable differences between the two. As a business owner, taking cash flow for profit can be a serious mistake. While a company can be highly profitable with a little cash flow, some companies may have ... Read More

What is Preferred Stock?Preferred stock is used to fund expansion projects or improvements that firms seek to engage in. Like all other equity capital forms, selling preferred stock helps companies to raise funds.Preferred stock does not dilute the ownership stake of common shareholders, as preferred shares don’t hold the same ... Read More