{"id":499,"date":"2014-06-22T16:12:13","date_gmt":"2014-06-22T16:12:13","guid":{"rendered":"http:\/\/zh.aceessays.com\/tc\/?p=499"},"modified":"2015-01-18T20:41:04","modified_gmt":"2015-01-18T20:41:04","slug":"average-and-marginal-cost","status":"publish","type":"post","link":"https:\/\/www.aceessays.com\/tc\/average-and-marginal-cost\/","title":{"rendered":"Average and marginal cost"},"content":{"rendered":"<h3>Average and marginal cost<\/h3>\n<ul>\n<li>The marginal cost of capital is the cost of the incremental capital raised.<\/li>\n<li>Initially, as cheaper debt is added, average cost of capital will fall.<\/li>\n<li>After a minimum is reached, the average cost of capital will rise due to increased risk.<\/li>\n<li>The marginal cost will initially be lower than average: after the minimum, it will be higher.<\/li>\n<\/ul>\n<h3>Average and marginal cost<\/h3>\n<h3>When to use WACC?<\/h3>\n<p>WACC can be used in investment appraisal in certain restricted circumstances:<\/p>\n<ul>\n<li>Business risk of investment project is similar to business risk of existing operations.<\/li>\n<li>Incremental finance is raised in proportions that preserve existing capital structure.<\/li>\n<li>Required return of existing finance sources is not affected by new investment project.<\/li>\n<\/ul>\n<h3>Practical problems with WACC<\/h3>\n<ul>\n<li>Security market values may be unavailable:<\/li>\n<\/ul>\n<blockquote>\n<ul>\n<li>Use substitute security with similar risk, return, and maturity<\/li>\n<li>Add risk premium to yield on government bond<\/li>\n<\/ul>\n<\/blockquote>\n<ul>\n<li>Securities may be complex:<\/li>\n<\/ul>\n<blockquote>\n<ul>\n<li>Convertible securities<\/li>\n<li>Floating rate notes<\/li>\n<li>Foreign currencies<\/li>\n<li>Currency and interest rate swaps<\/li>\n<\/ul>\n<\/blockquote>\n<h3>Problems with calculating WACC<\/h3>\n<ul>\n<li>Which sources of finance should be included in the WACC calculation?<\/li>\n<li>What about long-term bank debt?<\/li>\n<\/ul>\n<blockquote>\n<ul>\n<li>Use book value and average interest rate.<\/li>\n<li>Accounts may not provide adequate data.<\/li>\n<li>Internal information will be required.<\/li>\n<\/ul>\n<\/blockquote>\n<ul>\n<li>Company may have large range of securities.<\/li>\n<li>WACC is not constant.<\/li>\n<\/ul>\n<p>Critical essay writing: <a href=\"http:\/\/www.aceessays.com\/tc\/\">\u8ad6\u6587\u4ee3\u5beb<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Average and marginal cost The marginal cost of capital is the cost of the incremental capital raised. Initially, as cheaper debt is added, average cost of capital will fall. After a minimum is reached, the average cost of capital will rise due to increased risk. The marginal cost will initially be lower than average: after the minimum, it will be higher. Average and marginal cost When to use WACC? WACC can be used in investment appraisal in certain restricted circumstances: Business risk of investment project is similar to business risk of existing operations. Incremental finance is raised in proportions that preserve existing capital structure. Required return of existing finance sources is not affected by new investment project. Practical problems with WACC Security market values may be unavailable: Use substitute security with similar risk, return, and maturity Add risk premium to yield on government bond Securities may be complex: Convertible securities<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[22],"tags":[],"class_list":["post-499","post","type-post","status-publish","format-standard","hentry","category-notes"],"_links":{"self":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/499","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/comments?post=499"}],"version-history":[{"count":1,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/499\/revisions"}],"predecessor-version":[{"id":1526,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/posts\/499\/revisions\/1526"}],"wp:attachment":[{"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/media?parent=499"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/categories?post=499"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.aceessays.com\/tc\/wp-json\/wp\/v2\/tags?post=499"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}