Discussion 5 and 6

Running head : Discussion 5 and 6

Name

Institution

Course

Tutor

Date

Discussion 5 and 6

What does a firm 's overall cost of capital mean ? To satisfy investors what type of return on invested capital must a firm earn to create value

Cost of capital is the return necessary to make a capital budgeting process worthwhile . Further , it is the returns that a company gets after an investment . This is the money that evaluates any new project of a company for it determines the minimum profit expected

by investors in the business . To satisfy investors , the return on capital employed must be above the company 's average debts , thus making investments worthwhile . That is , the expected output must be more than the invested capital the returns are more than the capital (Armitage , 2005 Moreover , if a project costs the same as the company 's average business activities , then it is wise to use the average cost of capital of the company as the base . This ensures that the company 's security on the cost of capital is calculated . It is done by first calculating the cost of debt and equity . Afterwards , calculate the expected returns after doing business . This is done by dividing the dividend payment per share with the market price then adding the growth rate . One can thus issue dividends to investors

From a financial manager 's perspective , discuss the capital budgeting process used to identify projects that add to the firm 's value ? How do capital budgeting...