course hero what is the long-term growth rate and cost of capital of federal bank

What is opportunity cost?

The opportunity cost represents the investor's return on the next-best investment that is foregone should the project under consideration be accepted and thus must equal the investor's required rate of return.

Is it necessary to adjust the cost of common stock for taxes?

It is not necessary to adjust the cost of common stock for taxes since basis since dividends paid to common stockholders are not​ tax-deductible.

What is terminal growth rate?

The terminal growth rate is widely used in calculating the terminal value#N#DCF Terminal Value Formula DCF Terminal value formula is used to calculate the value a business beyond the forecast period in DCF analysis. It's a major part of a model#N#of a firm.

What is the terminal value of a cash flow model?

We need to keep in mind that the terminal value found through this model is the value of future cash flows at the end of the forecasting period. In order to calculate the present value of the firm, we must not forget to discount this value to the present period. This step is critical and yet often neglected.

What is DCF terminal value?

DCF Terminal Value Formula DCF Terminal value formula is used to calculate the value a business beyond the forecast period in DCF analysis. It's a major part of a model

What is free cash flow?

Free Cash Flow (FCF) Free Cash Flow (FCF) measures a company’s ability to produce what investors care most about: cash that's available be distributed in a discretionary way.

What is the Gordon growth model?

Gordon Growth Model The Gordon Growth Model – also known as the Gordon Dividend Model or dividend discount model – is a stock valuation method that calculates a stock’s intrinsic value, regardless of current market conditions. Investors can then compare companies against other industries using this simplified model

What is the growth rate of a company at maturity?

We often assume a relatively lower growth rate for this stage, usually 5% to 8%.

Does high growth rate change over time?

Moreover, this model assumes that high growth rates transform immediately into low growth rates upon the firm entering the next maturity level. Realistically, however, the changes tend to happen gradually over time.

What is the long term capital investment cycle?

The long-term capital investment cycle occurs when the large capital assets of a company go through the entire duration of their lifespan. Capital investments are usually a sizable investment in dollar value, as well as sometimes even in physical size. The long-term capital investment cycle contains many smaller operating cycles ...

What are adverse market conditions?

Adverse market conditions present a large risk component for any company when deciding on the contents of a long-term capital investment cycle. Even larger companies need to be cautious that they do not invest too much in setting up operations globally too quickly; a pitfall many retailers fall into.

What is a medium sized business?

Let’s say that you are the owner of a medium-sized business#N#Small and Medium-sized Enterprises (SMEs) SMEs, or small and medium-sized enterprises, are defined differently around the world. The country a company operates in provides the#N#that develops and manufactures tennis rackets. You enjoyed several great years of profitability and are actively looking to expand your product line and operations. You realize that the current factory that you own is at capacity, and instead of attempting to outsource or contract out manufacturing, you decide to invest in the creation of a new factory to increase your manufacturing capacity.

What is capital expenditure?

Capital Expenditures Capital expenditures refer to funds that are used by a company for the purchase, improvement, or maintenance of long-term assets to improve. , such as building a new factory, are cash-intensive and require a lot of time to see a return on investment, it can present some short-term risk if the economy were to enter a recession.

What is the business life cycle?

Business Life Cycle The business life cycle is the progression of a business in phases over time, and is most commonly divided into five stages. Corporate Strategy.

Why is capital expenditure important?

Because of the very nature of a large capital expenditure, it may require a company to take on more leverage or divert a significant amount of its assets away from other operations. It can present a risk for a smaller company in terms of liquidity and the overall financial position of the company.

A View of Multi-Stage Growth Rates

Application of The Terminal Growth Rate

Terminal Growth Rate Formula

• The perpetuity growth model for calculating the terminal value, which can be seen as a variation of the Gordon Growth Model, is as follows: Terminal Value = (FCF X [1 + g]) / (WACC – g) Where: FCF (free cash flow) = Forecasted cash flow of a company g = Expected terminal growth rate of the company (measured as a percentage) WACC = Weighted average ...

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Limitations of The Multi-Stage Growth Rate Model

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