Essay --

Ans. Today a typical operation spends and takes in several hundred thousand dollars per year , and income over a million dollars are not uncommon. The irregularity of income and expenses, and the use of intensive technologies have become very capital have adequate funding in the key to the success of a business right time. The use of capital and credit has modern investors with a series of decisions to make : †¢ How much to invest? †¢ Where to get capital? †¢ What combination of equity and debt to use? †¢ How to negotiate rates and terms of the credit? †¢ How much financial risk to take ? Making good financial decisions is often the difference between a thriving economy , growing farm business and is constantly wondering how to pay the next bill. The modules in this course of professional study will address the above decisions , and more. Although the modules are arranged in a logical sequence , can be completed in any order you want. According keeper and ambrosio , " Financial Management is the application of the functions of planning and control of the finance function. " ï  ® Financial decisions are decisions concerning the financial matters of a Firm. The financial decisions are grouped into three categories. 1. Investment decisions. 2. Financing decisions. 3. Dividend decisions. Investment decisions An investment decision revolves around the capital expenditure assets that produce the best performance of the company over a period of time desired . In other words , the decision is about what to buy for the company will get the maximum value. To do this, the company has to find a balance between your short term and long term. In the very short term , a company needs money to pay your bills, but keeping all your cash means you ... ...ned as: WACC= [kd(D/D+E) + ke (E/D+E)] D= Dividend E= Equity Kd= cost of debt Ke= cost of equity WACC= value of the firm The WACC for the firm may be calculated as follows: % 0f Equity % of Debt Cost Of Debt Cost Of Equity Cost of capital of Debt Cost of capital of Equity WACC 100% 0% 5% 12% 0.00% 12.00% 12.00% 90% 10% 5% 12% 0.50% 10.80% 11.30% 80% 20% 5% 12.50% 1.00% 10.00% 11.00% 70% 30% 5.50% 13% 1.65% 9.10% 10.75% 60% 40% 6% 14% 2.40% 8.40% 10.80% 50% 50% 6.50% 16% 3.25% 8.00% 11.25% 40% 60% 7% 20% 4.20% 8.00% 12.20% The optimal debt equity mix for the company occurs at a point when the overall cost of capital, ko, is minimum. The above calculations show that the ko is minimum at a point when the debt is 30% of the total capital employed. Therefore, the firm should use 30% debt and 70% equity in its capital structure and its ko would be 10.75%.