Re: MGT502 Handouts

Please explain what is the meaning of Cost of Capital , Raising funds by a company & Accrual accounting in financial Accounting and financial management.

Answer:
Capital may be raised by an organization either by issuing stocks/shares or bonds (debt). Cost of debt is the interest charges on debt while the cost of shares/equity refers to a shareholder’s required rate of return on equity investment. Cost of equity is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Cost of equity may also include the expenses that are raised to issue the share in market e.g The Lawyer’s fee and Stock Brokers’ Commissions etc.

Bond is a debt instrument under which the issuer owes a debt from its holders and obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Organizations use to issue bonds in order to get money for investment. Individual/ institutions purchase those bonds by paying money to the organizations. Organizations are than liable to pay an agreed interest/ coupon to the bond holder at regular interval and also pay the principal amount upon the maturity of bond.

Accrual basis accounting

Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid. For example, you would record revenue when a project is complete, rather than when you get paid. This method is more commonly used than the cash method. While the second method is cash based.

Cash basis accounting

The cash basis of accounting recognizes revenues when cash is received, and expenses when they are paid. This method does not recognize accounts receivable or accounts payable.

Financial Management: Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.

The financial managers use the report that are generated in the process of financial accounting to assess the financial position of the company through various financial management tools and then the financial position can be compared to, or benchmarked against the industry norms.

What is the difference between fair value and intrinsic value?

Answer:
Intrinsic value is an anticipated value that is based on the fundamental analysis, the amount a rational investor is willing to pay for a security at a given level of risk. This fundamental or intrinsic value is based on discounted value of future cash flows attached with that security.

What is liquidation value with example?

Answer:
Fair value is the value of an asset that is determined by the market, a price that a buyer is willing to pay and seller is willing to accept. It is assumed that both the parties have complete knowledge and transaction is taking place in open market.

How do you calculate liquidation value?

Liquidation value is the value of company’s physical assets in case when company’s assets are sold. For details of liquidation process consult following link:
https://youtu.be/2GJ474smIEQ

1. How do you calculate liquidation value?
2. What is liquidation value with example?
3. What is the difference between fair value and intrinsic value?

sir in lecture 2 you explained that the objective of micro economics is to maximize wealth but sir micro economics deals with the individual decision making or behavior, so in this prospect how micro economics can maximize wealth? or is it macro economics ?

Answer:
In lecture 2 objectives of economics have been discussed and when we talk about economics than it covers both macro and micro economics. Your concept about the macro and micro economics is correct but discussion was on general economics and not specifically about macro or micro.

Dear sir i want to ask a question about lecture no 2 is Preferred stock kindly explain this.

Preferred stock is called hybrid security because it has some features of stock and bonds. Normally, preferred stocks have fixed dividend like interest on bonds. Stockholders have a higher claim to dividend or asset distribution than common stockholders. The details of each preferred stock depend on the issue.

Please tell what is the meaning of Cost of Capital & Debt Instruments.Thank you

Answer:
Capital may be raised by an organization either by issuing stocks/shares or bonds (debt). Cost of debt is the interest charges on debt while the cost of shares/equity refers to a shareholder’s required rate of return on equity investment. Cost of equity is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Cost of equity may also include the expenses that are raised to issue the share in market e.g The Lawyer’s fee and Stock Brokers’ Commissions etc.

Bond is a debt instrument under which the issuer owes a debt from its holders and obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Organizations use to issue bonds in order to get money for investment. Individual/ institutions purchase those bonds by paying money to the organizations. Organizations are than liable to pay an agreed interest/ coupon to the bond holder at regular interval and also pay the principal amount upon the maturity of bond.

Re: MGT502 Handouts

Please explain what is the meaning of Cost of Capital , Raising funds by a company & Accrual accounting in financial Accounting and financial management.

Answer:
Capital may be raised by an organization either by issuing stocks/shares or bonds (debt). Cost of debt is the interest charges on debt while the cost of shares/equity refers to a shareholder’s required rate of return on equity investment. Cost of equity is the rate of return that could have been earned by putting the same money into a different investment with equal risk. Cost of equity may also include the expenses that are raised to issue the share in market e.g The Lawyer’s fee and Stock Brokers’ Commissions etc.

Bond is a debt instrument under which the issuer owes a debt from its holders and obliged to pay them interest (the coupon) and/or to repay the principal at a later date, termed the maturity date. Organizations use to issue bonds in order to get money for investment. Individual/ institutions purchase those bonds by paying money to the organizations. Organizations are than liable to pay an agreed interest/ coupon to the bond holder at regular interval and also pay the principal amount upon the maturity of bond.

Accrual basis accounting

Accrual accounting is a method of accounting where revenues and expenses are recorded when they are earned, regardless of when the money is actually received or paid. For example, you would record revenue when a project is complete, rather than when you get paid. This method is more commonly used than the cash method. While the second method is cash based.

Cash basis accounting

The cash basis of accounting recognizes revenues when cash is received, and expenses when they are paid. This method does not recognize accounts receivable or accounts payable.

Financial Management: Financial Management means planning, organizing, directing and controlling the financial activities such as procurement and utilization of funds of the enterprise. It means applying general management principles to financial resources of the enterprise. They relate to the raising of finance from various resources which will depend upon decision on type of source, period of financing, cost of financing and the returns thereby.

The financial managers use the report that are generated in the process of financial accounting to assess the financial position of the company through various financial management tools and then the financial position can be compared to, or benchmarked against the industry norms.