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Thesis Topic

Shriya

Pednekar- FF4 (Finance)


The Feasibility of using Companywide Cost of Capital for Investment Decision

Introduction to the topic Cost of capital is said to be the most important concept in finance. The cost of capital act as an essential link which enables to analyze the closer figure of present value, expected income etc. through cost of capital investment opportunities can be analyzed with respect to pricing decisions for purchases and sales and other operational activities.

Need for research Cost f capital act as a tool in order to determine the risk involved in pricing of various operational, financial and investment activities. In market, better informed cost of capital estimation will improve the financial decision every day. For. E.g. Small differences in discount rates and especially small differences in capitalization rates can make very large differences in concluded values. The purpose of this research is to showcase the estimation of cost of capital and its practical application on valuation, capital budgeting and forecasting of expected investment returns.

Commercial Viability of the Research This research can be extremely useful to the following for understanding the application of cost of capital with respect to operational, financial and investment activities of a company. It would also enable one to understand its importance with respect to pricing risk and expected incomes. Academicians Students learning Finance

Research objective:

To understand the feasibility of companywide cost of capital for investment decision. To analyze the viability of practical application of cost of capital with respect to expected income and pricing risk.

Research Questions: What is company wide cost of capital? How Cost of capital (company) is calculated? How to use cost of capital for the following: Valuation

Corporate Financial decision Forecasting expected investment returns To analyze the risk involved in pricing (CAPM)

Data collection The sources of data collection would be from primary and secondary sources. Secondary data collection would be from journals, books, articles, research work papers published on the internet or any previously published material relevant to this topic.

Conclusion No other valuation text or model is designed for the practitioner other than cost of capital which deals with practical application in breadth and depth of each and every context of a company. In terms of breadth, it means the cost of capital been used for business valuation, project assessment, capital budgeting etc. while the depth would indicate the using of capital asset pricing model for estimating the cost of equity.