Category: FINANCIAL MANAGEMENT

Accounting rate of return method is also called  financial statement method or unadjusted rate of return method. Decision Criteria In case of many projects, a project with higher ARR or NOI will be selected. In case of only one project, it would be selected if it earns more than companies predetermined required rate of return. Advantages of Accounting Rate of Read More …

Payback Period Method  is the simplest and most widely used method. Payback period is the time required to recover the initial investment. A firm is always interested in knowing the amount of time required to recover its investment. It is based on the concept of cash flow and is a non-discounting technique. Formula for Payback period To apply this formula, Read More …

Part of profit which is not distributed as dividend is retained earnings. Unlike debt and equity, there is no obligation to pay any return on retained earnings. So, we can say that there is no cost of retained earnings. But it is not so. From shareholder’s point of view, the retained earnings do have some cost. if that amount was Read More …

Cost of Equity is the minimum rate of return a company must earn on its equity-financed portion of the investment project in order to leave unchanged the market price of such shares. There is no legal obligation to pay dividend on equity shares and rate of dividend to be paid to equity shareholders is also not determined. But the company Read More …